My dissertation focuses upon low inflation. Many developed countries, especially Japan and the Eurozone, have recently experienced prolonged periods of below-target inflation. This has been blamed for many economic ills including worsening the Great Recession and generating a slow recovery, making monetary policy ineffective and leading to lower labor market flexibility. I study what has caused low inflation, its potential effects and how it could be prevented. In Chapter 1, I look at how effective raising the inflation target would be in mitigating the problems of low inflation. Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both widely assumed and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall in the New Keynesian model. This implies that raising the inflation target will increase the nominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ZLB. The channel is that a rise in the inflation target lowers the average markup by price rigidities and a fall in the average markup lowers the equilibrium real rate by household heterogeneity which could come from overlapping generations or idiosyncratic labor shocks. Raising the inflation target from 2% to 4% lowers the equilibrium real rate by 0.38 percentage points in my baseline calibration. I also analyse the optimal inflation level and provide empirical evidence in support of the model mechanism. In Chapter 2, I study to what degree the recent fall in inflation can explain the rise in firm profitability which has been blamed for a rise in inequality. A theoretical relationship between inflation and profitability is known to exist. I investigate the degree to which the recent fall in inflation can explain the rise in firm profitability. My three primary findings are: 1. The negative relationship between inflation and profitability does not hinge upon the Calvo assumption. Raising inflation significantly lowers profitability under all common price rigidities. The relationship can actually be significantly stronger under menu costs. 2. A rise in the degree to which firms discount the future magnifies the effect; a rise in elasticity of substitution can increase or decrease the effect depending upon the price rigidity. 3. The profit share has risen by around 3.5p.p. since the 1990s. In a richer model with firm heterogeneity, the recent fall in inflation is estimated to explain 14% of the rise. This can increase to 29% if firms are allowed to discount the future by more in line with estimates from the finance literature. I also provide empirical evidence for the negative relationship between inflation and firm profits. In Chapter 3, I examine whether behavioral features can help to explain why some countries have persistently experienced low inflation at the zero lower bound. Economists are keen to introduce behavioral assumptions into modern macroeconomic models. A popular framework for doing so is sparse dynamic programming, which assumes that agents partly base their expectations upon a default model which is typically the steady state. This means agents' expectations will be wrong if there are long-run deviations from the default model and assumes agents can compute the default. I introduce an alternative form of sparse dynamic programming which tackles these problems by allowing for long-run updating to the behavioral part of agents' expectations. I apply this to derive a long-run behavioral New Keynesian model. Within this model, fixed interest rates yield indeterminacy and the costs of remaining at the zero lower bound are unbounded. These results are very different to a behavioral New Keynesian model based upon standard sparse dynamic programming, which can yield determinacy under fixed interest rates and bounded costs of the zero lower bound.

Orientador: Eduardo Strachman / Banca: André Luiz Correa / Banca: Marcos Roberto Vasconcelos / Resumo: Dentre os vários trabalhos publicados sobre o Regime de Metas de Inflação (RMI), poucos procuram comparar o desenho do arranjo institucional escolhido pelos países que usam este regime com os resultados e impactos sobre as principais variáveis macroeconômicas. Deste modo, o objetivo central desse trabalho consistiu em identificar, analisar e comparar o desenho institucional do quadro de metas de inflação com os resultados obtidos pelos países que usam o Regime de Metas de Inflação, com ênfase no desempenho brasileiro em relação aos seus pares emergentes e da América do Sul que usam esse regime de política monetária. Foi realizada uma breve apresentação dos principais fundamentos teóricos e empíricos do RMI e das principais críticas feitas a este regime. Em seguida, foram identificados os diversos formatos que o regime pode assumir e as escolhas feitas pelos países na formatação do arranjo em relação a quatro elementos fundamentais: o nível da meta, o tipo da meta, o índice de preços oficial usado e o horizonte alvo. A combinação desses elementos determina o grau de rigidez do arranjo institucional. Foram comparados os resultados obtidos por países desenvolvidos e emergentes em relação ao nível e volatilidade da inflação e cumprimento da meta. Também foi comparado o desempenho do Brasil em relação às principais variáveis macroeconômicas com o desempenho de outros países que usam este regime há pelo menos uma década e encontram-se no mesmo estágio de desenvolvimento - emergente... (Resumo completo, clicar acesso eletrônico abaixo) / Abstract: Among several works published about Inflation Targeting regime (IT), a few of them attempt to compare the design of the institutional settlement chosen by countries which use this strategy with results and impacts over the main macroeconomic variables. Therefore, the main purpose of this study consists of identifying, analyzing and comparing the institutional design from the inflation targeting table with the results obtained by countries that apply the Inflation Targeting Regime, focused on Brazil's performance compared with its emerging counterparts in South America which use this monetary policy. A brief presentation of the main theoretical and empirical foundations on IT and the primary critics to this system. Secondly, the various formats this system may assume were identified, as well as the choices made by countries for the settings of the system related with four essential elements: target level, target type, the official price index and the target perspective. The combination of these elements determines the level of rigidity for the institutional design. Results obtained by emerging and developed countries were compared in relation with the level and volatility of inflation and target achievement. In addition, in relation with the main macroeconomic variables, Brazil's performance was compared to other countries that apply this system for at least ten years and which are currently in the same development stage (emerging). The obtained data indicate significant diffe... (Complete abstract click electronic access below) / Mestre

Thesis (Ph.D. (Statistics)) -- University of Limpopo, 2017 / Refer to docutment

Thesis (Ph. D.)--Ohio State University, 1984. / Includes vita. Includes bibliographical references (leaves 100-104). Available online via OhioLINK's ETD Center.

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The goal of this dissertation is to analyze issues that arise when policy makers try to learn about the economy while their policies are affecting it. The dissertation takes the form of three essays. The first essay examines how optimal policy affects equiUbrium economic outcomes in environments in which agents are both imperfectly informed about the state of the economy and able to learn by observing the actions of others. This type of environment, in which there is social learning, has received growing attention, but to date there has been little examination of strategic policy making in such settings. In particular, the question of whether policy, in the absence of a commitment technology, can be designed to increase the speed of information revelation remains open. The essay builds on a real options model of investment and shows how this framework can be extended to derive time consistent policies and the related equilibrium outcomes in social learning environments. By comparing the equilibrium induced by a policy maker to both the laissez-faire outcome and the social optimum, it is shown that the policy maker is able to achieve the second best outcome and reduce delay to the efficient level even in the absence of commitment. The second essay raises the question of whether the fact that policy makers play a dual role, as both information gatherers and economic managers, can explain the flattening of the Phillips Curve relationship between inflation and real activity that has been observed in both Canada and the U.S. over the 1990s. The paper models the central bank as both a provider of liquidity in a world where pre-set prices would otherwise cause potential gains from trade to go unrealized and a gatherer of information about real developments in the economy. The bank's information complements that of private agents so that, the central bank and private agents both wish to learn from the other. In equilibrium, this interaction gives rise to a Phillips curve relationship which both exhibits causality running from real activity to prices and justifies a feedback from prices to the setting of monetary instruments. The model implies that a decline in the slope of the Phillips curve may be a result of improvements in the manner in which central banks gather information about the economy. An investigation of the data for Canada and the U.S. finds support for the model. The third essay attempts a more thorough empirical investigation of the issues raised in the previous chapter. The paper enriches the dynamic aspects of the model to further examine its properties, but focuses mainly on attempting to uncover whether the types of changes to the Phillips curve relationship which had been previously documented in Canada and the U.S. have occurred in other OECD countries. The paper investigates this question using both single country and panel estimation and finds that the phenomenon of a declining slope in the Phillips curve relationship is prevalent in OECD countries throughout the 1980s and 1990s. Finally, the paper attempts to exploit the cross country data to provide more formal tests of the model's predictions regarding policy innovations and inflation targeting regimes. The results suggest that the model compares favourably to other potential explanations of the decline in the slope of the Phillips curve.

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This study reports the development and use of an original methodology to measure inflation credibility, as well as the first results of such measurement in terms of an inflation credibility barometer. The barometer is an instrument measuring the degree of acceptance of the accuracy of historic inflation figures. Despite the lack of knowledge about inflation and the low inflation credibility recorded by this first calculation of an inflation credibility barometer for South Africa, valuable information about inflation is unveiled to the authorities. The research results serve as a benchmark, but cannot be compared to earlier research, as this study represents the first systematic measurement of inflation credibility in South Africa. The barometer yields better results than the limited current international measurement of perceptions of the accuracy of historic inflation figures. The barometer (i) reports the credibility of inflation figures as a figure between zero and 100; (ii) will highlight changes in credibility over time with repeated use; (iii) can be explained easily to the general public; (iv) provides for international comparison between countries; and (v) can be used by all countries. The use of inflation credibility barometers and changes in barometer readings over time can also serve as an early warning system for changes in inflation perceptions that might feed through to inflation expectations. Sampling results used to calculate a South African inflation credibility barometer show little public understanding of the rate of inflation. Owing to an increased focus on inflation figures in countries using an inflation-targeting monetary policy, central banks entrusted with such a policy should adopt a communication strategy highlighting the calculation and measurement of the rate of inflation. This study shows that no generally accepted international benchmarks for successful central-bank communication strategies have been developed, but the use of the methodology developed in this study will assist in the assessment of the effectiveness of communication strategies. This study makes three further contributions of significance to available literature on inflation in South Africa. The first is an analysis of price increases and inflation over a period of 85 years (1921 to 2006) and a selected comparison of salaries and remuneration over a period of 78 years (1929 to 2006). To this end data sets were developed for comparative purposes, thereby distinguishing between perception and reality about the accuracy of inflation figures over time. As this comparison has not been done before, a methodology was developed that can be used in future research. Based on these comparisons an inflation accuracy indicator (JAI) is developed for the first time. The research showed no systematic over or under-reporting of price increases, therefore confirming the general accuracy of the consumer price index (CPI) over time. As with the inflation credibility barometer, this methodology can be used internationally to confirm the accuracy of countries' inflation figures over time. This methodology can also be used by developing countries with capacity constraints in economic modelling and forecasting. The second contribution to available literature is the first analysis of South Africa's experience with inflation over a period of 85 years from the perspective of the central bank. This analysis highlights not only the difficulties encountered by a central bank to contain inflation, but also focuses the attention on the policy errors of the authorities in their quest to contain rising prices. The third contribution is an analysis of international and domestic initiatives aimed at improving the accuracy and measurement of inflation. The implications of these initiatives for developing countries are considered in the interest of a level international playing field between developed and developing countries. / Thesis (Ph.D.)-University of KwaZulu-Natal, Durban, 2007.

This study analyses various perspectives on inflation targeting as a monetary policy framework in South Africa. The study uses semi-structured interviews with participants who represent the perspectives of trade unions, SARB, and academics amongst others. All the interviews were recorded on audio tape to ensure accuracy and effective data collection. The interviews of all participants were analyzed to establish degrees of similarities and differences amongst them. The study also looks at the relationship between inflation and interest rates. The use of interest rates as a tool to curb inflation is also discussed, as is the effect of the exchange rate on inflation. The Philips Curve Theory and the Fisher Hypothesis provide empirical evidence to support inflation targeting. Moreover, the perspective raised by the ANC Alliance partners were that an inflation band of 3% - 6% is too narrow, too low and hampers economic growth. Then Analysis suggests a significant policy shift away from inflation targeting after the 2009 elections, as a result of dissatisfaction from the Alliance partners of the ruling party. The main objective of this study is to solicit perspectives on inflation targeting from various political parties, trade unions, businesses, the SARB and academics, as well as investigate case studies from other countries. An underlying task of this study is to predict what South Africans should expect from a Zuma Government with regard to monetary policy. / Thesis (MBA)-University of KwaZulu-Natal, 2009.