why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

measuring the energy security implications of fossil fuel resource concentration abstract economic assessments of the welfare effects of energy insecurity are typically uncertain and fail to provide clear guidance to policy makers as a result governments have had little analytical support to complement expert judgment in the assessment of energy security this is likely to be inadequate when considering multiple policy goals and in particular the intersections between energy security and climate change mitigation policies this paper presents an alternative approach which focuses on gauging the causes of energy insecurity as a way to assist policy making the paper focuses on the energy security implications of fossil fuel resource concentration and distinguishes between the price and physical availability components of energy insecurity it defines two separate indexes the energy security price index espi based on the measure of market concentration in competitive fossil fuel markets and the energy security physical availability index espai based on the measure of supply flexibility in regulated markets the paper illustrates the application of espi and espai with two case studies france and the united kingdom looking at the evolution of both indexes to 2030

further long memory properties of inflationary shocks several previous studies have found fractionally integrated or long memory behavior in the conditional mean of inflation this paper notes that extremely similar phenomena are also apparent in the squared and absolute values of residuals from fractionally filtered inflation series hence the inflation process appears to have a dual long memory feature in both its first and its second conditional moments we suggest a parametric model of long memory in both the conditional mean and the conditional variance some monte carlo evidence is presented that supports estimation of the model by approximate maximum likelihood methods we then report estimated models for the inflation series for several different industrialized countries including the united states for nearly all of the countries in our study there is strong evidence of statistically significant long memory parameters in both the conditional mean and the variance we note some of the implications for modeling inflation

oil vulnerability index of oil importing countries abstract this paper assesses the relative oil vulnerability of 26 net oil importing countries for the year 2004 on the basis of various indicators the ratio of value of oil imports to gross domestic product gdp oil consumption per unit of gdp gdp per capita and oil share in total energy supply ratio of domestic reserves to oil consumption exposure to geopolitical oil market concentration risks as measured by net oil import dependence diversification of supply sources political risk in oil supplying countries and market liquidity the approach using the principal component technique has been adopted to combine these individual indicators into a composite index of oil vulnerability such an index captures the relative sensitivity of various economies towards developments of the international oil market with a higher index indicating higher vulnerability the results show that there are considerable differences in the values of individual indicators of oil vulnerability and overall oil vulnerability index among the countries both inter and intraregional

regime changes in international real interest rates are they a monetary phenomenon in this paper we use the bai and perron 1998 2001 2003 methodology to test for multiple structural breaks in the mean real interest rate for 13 industrialized countries we find extensive evidence of structural breaks in the mean real interest rate for all 13 countries in an attempt to explain the breaks in international real interest rates we also test for multiple structural breaks in the mean inflation rate for the 13 countries once again we find extensive evidence of structural breaks in the mean inflation rate for all of the countries interestingly the breaks in inflation rates and real interest rates often coincide with increases decreases in the mean inflation rate as we move from one regime to the next typically associated with decreases increases in the mean real interest rate

evaluating energy security in the asia pacific towards a more comprehensive approach the energy security conundrum how to equitably provide available affordable reliable efficient and environmentally benign energy services is a technology and policy challenge perhaps unlike any other the recent article on an energy security in the asia pacific by vlado vivoda is an excellent starting point for how to best capture the unique energy security challenges facing the region this article builds on vivoda s work but also points out some shortcomings with his analysis

inflation and real short term interest rates a kalman filter analysis of the term structure this paper applies the kalman filter technique to look at the relationship among real interest rates inflation and the term structure of interest rate under the expectations hypothesis using quarterly data from 1960 1 to 1991 1 for inflation three month nominal short term interest rates and long term yields with maturities from one to five years this paper finds that the expectations hypothesis of the term structure holds up well for the data under the assumptions of a time varying premium and a random walk real interest rate in other words a reconciliation of the expectations hypothesis with the data is attained by assuming time varying term premium and non stationary real interest rate

interest rates and exchange rates some new empirical results abstract this paper presents indirect evidence on the behavior on the real interest rate by studying the correlations between changes in nominal interest rates and in exchange rates these correlations are examined both before and after october 6 1979 the empirical evidence supports the views that monetary shocks affect the real rate and that the change in fed monetary policy on october 6 led to greater variation in the real rate

can futures market data be used to understand the behavior of real interest rates this paper examines whether futures market data can be used to understand the behavior of real interest rates several ways of examining the data indicate that futures market data are not particularly informative about real interest rates not only does this evidence cast some doubt on results in previous research that make use of futures market data to draw inferences about real interest rates but it also indicates that future research on real interest rates may need to turn to a different line of attack understanding the behavior of real interest rates is a central issue in financial economics in previous research on this topic several approaches have been used to measure real interest rates in one approach real interest rates have been calculated by subtracting survey data on inflation expectations such as the livingston data from nominal interest rates the problem with survey based measures of real interest rates is that they are only as good as the survey measure of inflation expectations and there may be little incentive for the survey respondents to answer accurately an even more telling criticism of survey based measures often ignored in the literature is that the behavior of market expectations in driven by economic agents ai the margin who are eliminating unexploited profit opportunities market expectations are unlikely therefore to be well measured by the average expectations of survey respondents 2 because of doubts about survey based measures of real interest rates other

thailand s energy security indicators abstract this study presents an assessment of the energy security of thailand using nineteen indicators the assessment period is for a 45 year period 1986 2030 and used published data for 1986 2009 and applying three energy scenarios for the period 2010 2030 the three scenarios considered were high economic growth and least cost option heg lc low carbon society lcs and current policy cp the results show that lcs scenario shows higher energy security or lower vulnerability to energy risk on a long term however to achieve this the additional target of energy saving by 2030 should be changed from 25 reduction of energy intensity of final energy consumption to 60 energy intensity reduction of primary energy compared to 2009 level one benefit would be an increase in the non carbon incentive fuel portfolio by 33 of total primary energy supply in 2030 a reduction in crude oil and natural gas domestic production will be offset by an increase in their imports co 2 emission reduction of 123 mtco 2 and improvements in domestic energy reserves will also result

chinese energy investments in europe an analysis of policy drivers and approaches abstract enhancing the understanding of china eu energy relations the article examines chinese energy investments in europe from 2008 to 2015 and analyzes the energy interests and policy approaches underpinning them analysis of this data shows that within the eu 30 chinese investments largely focused on the oil and gas sector especially through the acquisition of company shares chinese energy investments in europe reflect a clear political and commercial strategy that addresses the prc s need to balance supply chain security of fossil fuels environmentally friendlier energy production and use as well as to enhance the market position and energy industrial capabilities of chinese state owned or state supervised energy companies based on a comprehensive set of domestic incentives for international investment the chinese penetration of the european energy sector is embedded within two levels of political cooperation the first level revolves around bilateral investment agreements between china and 27 eu member states on the second level china and the eu have established a variety of formats that guide their energy cooperation the conclusion of the proposed bilateral investment agreement between the prc and the eu would create a uniform investment environment across the continent and facilitate mutual economic benefits for both parties

evaluating china s natural gas supply security based on ecological network analysis abstract growing role of natural gas as an effective policy choice has kindled the discussions surrounding the security of its supplies in the policy circles of the chinese government this study tries to evaluate china s natural gas supply security and employs a system oriented modelling approach namely ecological network analysis ena to integrate all the critical compartments of china s natural gas supply system several ena indicators are constructed which disclose that domestic natural gas production contributes significantly to china s natural gas supply system in comparison with all the external natural gas suppliers in addition the variations in a system stability indicator suggest that diversification of external natural gas suppliers has a positive influence on china s natural gas supply security furthermore the results revealed that china s natural gas supply security policy is orchestrated on following features 1 to increase the investment in the upstream natural gas production sector to boost its domestic production in order to reduce its import requirements and 2 to diversify the external natural gas supplies by sources and routes to reduce the level of the economic and supply disruption related risks

is inflation persistence different in reality this study examines the inflation persistence using both online and official price indexes in argentina brazil china japan germany south africa the uk and the us using fractional integration technique the main results suggest that the degree of persistence estimated by the long memory parameter is smaller when using online price indexes believed to be a more realistic measure of inflation mainly in the cases of argentina brazil china and the uk monetary policy implications are discussed

nominal interest rates as indicators of inflation expectations forward interest rates have become popular indicators of inflation expectations theusefulness of this indicator depends on the relative volatilty and the correlation of inflation expectations and expected real interest rates this paper studies u s and u k data using a range of different tools and data sets the forward rate rule perfoms reasonably well in spite of significant movements in the expected real interest rate the reason is that the noise that movements in the expected real interest rate add to the inflation expectations is balanced by a tendency for expected real interest rates and inflation expectations to move in opposite directions

challenges and countermeasures of china s energy security china is now a major consumer and importer of energy and its choices and policies will increasingly affect the rest of the world this paper analyses the key features of china s energy policy as it faces the prospect of possible challenges to its energy security given the increasing reliance on fuel imports and the need to transform its energy to meet the requirements of a modern fast growing economy the paper examines whether the current energy mix is appropriate and sustainable and considers the china s policymakers new emphasis on energy efficiency conservation renewable energy and the shift to natural gas the primary energy source it examines the internal and external constraints on china s energy policy and considers the strategic dilemmas arising from china s increasing involvement in international energy markets it concludes that both the domestic and international implications of china s search for energy security will confront policymakers with hard choices that will affect not only energy policy but also china s geopolitical grand strategy

an empirical investigation into the international real interest rate linkages linear dynamic stochastic processes are derived for the ex ante real interest rates from those followed by the ex post real rates under the identifying assumption of rational expectations the technique is used to study instantaneous and lagged effects of u s ex ante real rates on a number of oecd ex ante real rates the author finds significant contemporaneous correlations between ex ante real rates in the long run however real rates seem to be insulated

an empirical investigation of the determinants of national interest rates differences abstract under floating exchange rates countries are supposed to be able to follow independent monetary policies while exchange and interest rates are free to adapt to expectations and new information this note investigates over the recent period of floating exchange rates whether interest rate differences are caused by expectations of exchange rate fluctuations international arbitrage model or differences in domestic economic policies domestic model or both simultaneously a domestic interest rate determination model has to be postulated and a classical fisherian relation was selected even with such a simple domestic model the driving force in setting interest rate seems to be domestic rather than international this result could be explained by international market inefficiencies but more probably by the fact that exchange rate variations are so unpredictable that their expectations play a little role in setting differences between national interest rates

stock prices asset portfolios and macroeconomic variables in ten european countries abstract this paper investigates the relationship between stock indices asset portfolios and macroeconomic variables in ten european countries it is shown that employment imports inflation and interest rates are inversely related to stock prices expectations about future real activity measures for money and the u s yield curve are positively related to stock prices a portfolio of european stock indices was constructed and it is shown that this portfolio is the variable that most strongly explains the variation in the stock prices the associations between stock prices and macroeconomic variables are shown to be strongest in germany the netherlands switzerland and the united kingdom there is a high degree of similarity between the effects in the first three of these countries in several instances the stock prices are related to historic value of economic variables indicating that predictive models can be constructed

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

measuring energy security can the united states achieve oil independence stochastic simulation of the direct economic costs of oil dependence in an uncertain future is proposed as a useful metric of oil dependence the market failure from which these costs arise is imperfect competition in the world oil market chiefly as a consequence of the use of market power by the organization of the petroleum exporting countries opec cartel oil dependence costs can be substantial it is estimated that oil dependence costs to the us economy in 2008 will exceed 500 billion other costs such as military expenditures or foreign policy constraints are deemed to be largely derivative of the actual or potential economic costs of oil dependence the use of quantifiable economic costs as a security metric leads to a measurable definition of oil independence or oil security which can be used to test the ability of specific policies to achieve oil independence in an uncertain future

ena based evaluation of energy supply security comparison between the chinese crude oil and natural gas supply systems abstract energy has become a scarce global strategic resource and energy supply security is receiving increasing attention a common evaluation platform is necessary to systematically understand the supply security levels of different energy sources and help make the national energy strategy ecological network analysis ena is thus regarded as a useful common tool to systematically simulate evaluate and compare the supply security for different energy sources when considering the fact that modern energy systems have formed a complex global energy network through extensive energy trading based on the established ena platform we evaluated and compared china s crude oil and natural gas supply security from 2000 to 2012 to this end we assessed the overall security level investigated the relationship among different compartments within the network system determined the system s structure and analyzed the system s properties it was found that the chinese crude oil supply security level was higher than that of the natural gas supply and that the crude oil supply system was more mature in terms of multiple properties suggestions are proposed to improve the chinese energy supply security based on further scenario analysis including increasing domestic energy production controlling energy consumption diversifying foreign supply sources and strengthening the strategic reserve the ena based common platform can be used for the systematic evaluation and improvement of energy supply security and further support national energy policymaking for both developed and developing countries both energy importers and exporters

core inflation and trend inflation abstract this paper examines empirically whether the measurement of trend inflation can be improved by using disaggregated data on sectoral inflation to construct indexes akin to core inflation but with a time varying distributed lags of weights where the sectoral weight depends on the timevarying volatility and persistence of the sectoral inflation series and on the comovement among sectors the modeling framework is a dynamic factor model with time varying coefficients and stochastic volatility as in del negro and otrok 2008 and is estimated using u s data on seventeen components of the personal consumption expenditure inflation index

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

correct cointegration tests of the long run relationship between nominal interest and inflation the fisher 1930 hypothesis suggests that a long run equilibrium relationship exists between the non stationary series nominal interest and expected inflation testing such a cointegrating relationship is complicated by the presence of the unobserved ex antereal rate of interest in residuals from the cointegrating regression assumptions concerning the stochastic properties of the expected real rate of interest are examined and two proxies for the ex antereal rate are employed in multivariate cointegration tests of the fisher hypothesis

assessment and regulation of urban crude oil supply security a network perspective abstract a stable energy supply is essential to support urban socioeconomic activities and to ensure urban sustainable development a quantitative systematic method is necessary to evaluate and improve the security level or urban energy supply ecological network analysis ena is thus applied as a useful general analysis tool to systematically simulate evaluate and compare energy supply security in different cities based on the established ena model we evaluated and compared the crude oil supply security for beijing shanghai and tianjin from 1997 to 2012 via sustainability stability and structure analyses the results indicate that the overall levels of crude oil supply security for the three cities showed similar features and increase trends during the study period whereas the key influencing compartments were different correspondingly related suggestions were proposed to improve urban crude oil supply security based on further scenario analysis including diversifying supply sources maintaining domestic supply improving internal crude oil production increasing consumption within a certain range and strengthening strategic reserves with different emphases for different cities the ena based general method provides a new perspective on the systematic evaluation and regulation of urban energy supply security which can support urban energy policymaking

international interest rates and inflationary expectations abstract fama s hypothesis that short term interest rates are efficient predictors of inflation has been criticized on the grounds that his test depends critically on the constancy of the short term expected real rate of interest this paper uses an international framework where the time invariance assumption of the real rate is replaced by the assumption that short term expected real rates are identical at a point in time across countries with well developed capital markets results support fama s contention that short term nominal rates of interest reflect inflationary expectations

a simple adaptive measure of core inflation this paper proposes a new measure of core inflation and compares it with several existing measures the new measure is adaptive and is designed to track sudden and persistent movements in inflation such as those arising from changes in monetary policy regimes the adaptive measure filters out transients more effectively than existing measures and it is a superior predictor of locally mean reverting components of inflation

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection

money supply announcements interest rates and foreign exchange abstract this paper presents a test of the joint hypothesis that money supply announcements affect the real interest rate and that changes in the real interest rate affect the exchange rate in the short run the test results are consistent with the joint hypothesis for example it is found that announcement of an unexpected jump in the money supply is accompanied by an increase in interest rates and an appreciation of the dollar if the rise in interest rates was entirely due to higher inflationary expectations the dollar should not appreciate

indicators of energy security in industrialised countries energy security has become a popular catch phrase both in the scientific arena as well as in the political discussion yet in general the applied concepts of energy security are rather vague this paper sheds some light on concepts and indicators of energy security first we conceptually discuss the issue of energy supply security and explain why it is not to handle by one science alone and what economics may contribute in order to structure the topic after providing a brief survey of existing attempts to define or measure energy security we suggest an additional dimension along which indicators of energy security may be classified ex post and ex ante indicators finally we illustrate our concept on the basis of several simplified indicators while ex post indicators are mostly based on price developments ex ante indicators are to a greater extent aimed at illustrating potential problems our illustration suggests that it is worthwhile to take into account the market structure along with the political stability of exporting countries

energy security externalities and policies abstract in this paper we review conceptual arguments and empirical evidence related to two potential sources of market failure involving energy security in doing so we consider several questions involving the distinction between externality and market inefficiency and the distinction between market failures that are amenable or not amenable to correction given our current understanding of the workings of an economy several conclusions follow from our analysis regarding the potential sources of market failure and possible remedies the problem of excess wealth transfer from exporter market power may be an issue but current knowledge of oil market behaviour is too weak to support a strong conclusion other supposed costs of oil import dependence also are not well grounded including externalities related to the vulnerability of the economy to energy price shocks

tests of the fisher hypothesis with international data theory and evidence the fisher hypothesis 7 8 states that nominal interest rates adjust fully to expected inflation for years tests of this hypothesis followed fisher 8 in regressing nominal rates on a distributed lag of past inflation which was used as a proxy for the expected rate of inflation see roll 15 for references fisher eventually concluded that nominal rates do not fully reflect expected inflation saying that when the cost of living is not stable the rate of interest takes the appreciation and depreciation into account to some extent but only slightly and in general indirectly 1 fisher attributed this to money illusion in more recent years other researchers have explained the non neutrality of inflation on grounds of general equilibrium sargent 16 and taxes darby 3 and feldstein 6 a new method of testing the fisher hypothesis was introduced by fama 4 he concluded that interest rates set in u s financial markets are informationally efficient fama s work highlighted the two separate although not always distinguishable elements in the fisher hypothesis 1 the effect of expected inflation on the expected real rate and 2 the question of whether or not the nominal rate reflects a rational forecast of expected inflation to test the informational efficiency of nominal rates fama 4 assumed a constant expected real rate arguing in the later paper that the efficiency test is robust with respect to the assumption of the constancy of the expected real rate this assumption has come under severe criticism carlson 2 nelson and schwert 14 on the grounds that the efficiency results are not verifiable given the actual behavior of realized real rates summers 17 extended the study of interest rates to the period 1860 to 1979 using both fisher s and fama s methods and found that the results are less favorable for the fisher hypothesis in a more recent study fama and gibbons 5 tested the fisher hypothesis using a procedure developed by ansley 1 which assumes that the expected real rate follows a random walk they concluded that nominal rates fully reflect expected inflation at the same time that the expected real rate adjusts to it this paper examines the question of whether international interest rates reflect expected inflation in their respective countries in doing so we expand on the previous work of kane and rosenthal 11 we show that although fama 4 introduced a bias into his tests his general approach was correct we then present simple time series tests and show that they fail for eurocurrency rates

market rationality tests based on cross equation restrictions abstract the information used by researchers in cross equation tests of rational expectations may be a small subset of the information available to the market such tests produce consistent estimates but have low power we develop a mechanism for dealing with this problem and use the procedure to perform cross equation tests on predictions from the football betting market the tests fail to reject rationality we provide evidence that market predictions from betting markets are not formed rationally it appears therefore that cross equation tests have low power even if the information sets used by the researcher and the market are approximately the same

political regime change and the real interest rate the effect of changes in policy regimes on real interest rates has important implications for financial and economic theory there is little current evidence that policy regime changes have any impact on the level of real interest rates we use large political changes as our measure of policy regime changes changes in presidential administration are more significantly correlated with real rate changes than are changes in the federal reserve chair or the mean shift points identified by garcia and perron 1996 using time series methods we also show that change of party control of congress is a significant factor explaining real rates we argue that theoretical models built on the assumptions of constant or policy invariant real interest rates are at variance with the empirical evidence

on the accuracy of time series interest rate and survey forecasts of inflation there has been much work examining and evaluating different methodologies in forecasting inflation for example fama 1975 1977 develops an interest rate model to predict the 1 monthahead rate of inflation using the cpi fama and gibbons 1982 1984 modify the interest rate model to account for a nonconstant real rate of interest and compare it to a univariate timeseries forecasting model and to the livingston forecasts carlson 1977a 1977b and others also analyze the consensus forecasts from the livingston survey pertaining to multiperiod forecasts of inflation pearce 1979 considered the livingston survey and time series forecasts our purpose in this paper is to investigate further the relative forecasting ability of three different methodologies in contrast to previous studies that have generally used the cpi to measure inflation our analysis uses the implicit gnp deflator this modification is motivated largely by the fact that calculations of the cpi inflat n rate often are distorted greatly by changes in relative prices e g blinder 1980 fischer 1981 this paper compares the accuracy of three different inflation forecasting procedures these include a univariate time series model an interest rate model based on the methodology of fama and gibbons and the median forecasts derived from the american statistical association national bureau of economic research survey the evidence presented is based on ex ante forecasts of quarterly inflation rates using the gnp deflator for the period 1970 11984 11 based on the evidence presented the general conclusion is that the survey forecasts provide the most accurate inflation forecasts

russian gas price reform and the eu russia gas relationship incentives consequences and european security of supply in order to provide a comprehensive picture on the relationship between russia and the eu the focus should be on both the external energy relationship as well as russia s internal organization this paper sets out to do this by combining both strands of research in order to arrive at recommendations for europe on the way to adjust its energy policy towards russia the emphasis is on whether or not russia should impose unified gas pricing main conclusions are that the perceived advantages of unified russian gas pricing to russia as well as europe are in fact overstated and that eu security of supply might worsen under unified gas prices three policy recommendations are that eu policy should 1 more explicitly acknowledge the interdependence between russia and europe 2 not push russia towards unified gas pricing and 3 not take for granted any increase in russian exports flowing to europe

fisher phillips friedman and the measured impact of inflation on interest a reply the purpose of this paper is to demonstrate that empirical findings which persistently appear to contradict the fisher hypothesis that the nominal rate of interest should rise by the full amount of an increase in anticipated inflation are due basically to a failure to control for changes in the real rate of interest that are associated with changes in anticipated inflation we are guided in our search for proper specification of a fisher equation by a simple general equilibrium model which is employed to derive the impact of a change in anticipated inflation upon nominal interest given the requirement that commodity money and labor markets remain in equilibrium in effect we depart from the empirical tradition which has grown up around testing of the fisher hypothesis that takes the real interest rate to be independent of anticipated inflation and argues that for anticipated inflation properly measured the data ought to support the fisher hypothesis 1

are tax effects important in the long run fisher relationship evidence from the municipal bond market are nominal bonds appropriately discounted for taxes empirical estimnates of the response of nominal interest rates to changes in inflation the fisher effect have failed to produce a definitive answer four reasons have been put forward as possible explanations i tobin effects ii fiscal illusion iii peso problems and iv different estimators utilizing data on taxable and tax exempt bond interest rates and several different estimators we find that the fisher effect estimates are always larger for the taxable bond relative to the tax exempt bond suggesting that fiscal illusion and different estimators cannot account for the previous results how economic agents respond to the tax burdens of assets with different tax treatment is an important issue at both the level of the individual micro and the aggregate economy macro one clear source of evidence would appear to be the market for high quality debt trading in both taxable and tax exempt debt occurs on a daily basis the response of the rates of return on taxable and tax exempt debt to changes in expected inflation are described by the fisher relationship the fisher relationship is one of the oldest equilibrium relationships in financial economics fisher s original proposition was that if the real rate of interest is relatively constant over time a fully perceived change in the purchasing power of money as proxied by the inverse of the rate of inflation would be accompanied by a proportional increase in the nominal interest rate darby 1975 points out that when nominal interest income is taxed as are interest payments on u s treasury bills the fisher relationship implies a response from nominal interest rates that is greater than the change in expected inflation in order to maintain the constant ex ante real interest rate summers 1983 suggests that given average marginal tax rates in the united states the appropriate value of the fisher effect is 1 3 to 1 5 for tax exempt bonds the original fisher specification should be a good approximation implying a fisher effect close to unity in a seminal paper fama 1975 presents evidence to support the hypothesis that changes in nominal

the sources of the movements in interest rates the paper investigates the sources of interest rate movements in italy during the 1970s in that decade the country experienced the highest and most variable inflation rate among the industrial nations and was affected both by external shocks and by shocks to the labor and financial markets the paper shows that movements in inflationary expectations dominated the nominal interest rate variability the part of variability that was not explained by expected inflation was accounted for by unanticipated changes in the terms of trade by contrast domestic monetary and real disturbances did not have a sizeable impact on the variability

the fisher effect in a signal extraction framework the recent brazilian experience abstract this paper derives a signal extraction framework for examining all testable implications of the fisher equation the signal is the net of taxes nominal interest rate which under the fisher model equals inflation expectation plus the real rate assumed to be constant or a constant plus a martingale difference all alternative linear models can be represented as noise added to the signal the international and brazilian literature are briefly reviewed and the empirical tests reinterpreted in the signal extraction framework the model is tested with brazilian data for the period 1973 1990 using interest rate data on non indexed certificates of deposit from a sample of major brazilian banks the framework detects little noise i e the fisher equation seems to reasonably fit the brazilian evidence this result carries the policy implication that the government cannot have the burden of financing its fiscal deficits ameliorated by issuing non indexed debt in periods when inflation is escalating given the large fluctuations observed in ex post real rates in brazil the reasonable success of the fisher equation also implies the existence of large inflation forecast errors which suggest the need for further research on how agents form inflation expectations when inflation escalates rapidly as it did in the late 1980s in brazil price indices lag behind true inflation this generates a fisher effect even for indexed securities the empirical evidence also corroborates the existence of this fisher effect for indexed securities

fisher s paradox and the theory of interest irving fisher s theory of interest has proved to be a most durable and influential contribution to economic theory a central element of fisher s contribution is the fisher hypothesis that over the longer term the real rate of interest is approximately constant being determined largely by time preference with movements in the nominal interest rate reflecting movements in the rate of inflation one for one the paradox of the fisher hypothesis is that despite its wide acceptance as the cornerstone of interest rate theory most empirical evidence appears to be inconsistent with the hypothesis at least in its strictest form this empirical anomaly was noted by fisher himself who attributed it to money illusion in the fifty years following the publication of the theory of interest a considerable literature has evolved around this paradox the unifying theme of this literature is a common acceptance of the essence of fisher s hypothesis most of the energy in this literature has been devoted to explaining systematic movements in the real rate of interest and to providing reasons why the relationship between the nominal interest rate and inflation may only be approximate in

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

sectoral conflict over stabilisation policies in small open economies a small open economy is characterized by a two sector model with tradables and non tradables stabilization policies typically have unequal effects on these two sectors and expansion of total output often requires contraction in one sector such situations make difficult obtaining effective consensus on the appropriate stabilization policy expansionary fiscal policy requires a contraction in one sector after the labour market adjusts to the disturbance monetary policy is ineffective under fixed exchange rates and may not have sectoral conflict under flexible exchange rates sectoral conflict can be eliminated by designing policy combinations that maintain a given relative price of nontradables this abstract was borrowed from another version of this item

the adjustment of stock prices to information about inflation this paper analyzes the reaction of stock prices to the new information about inflation based on daily returns to the standard and poor s composite portfolio from 1953 78 it seems that the stock market reacts negatively to the announcement of unexpected inflation in the consumer price index c p i although the magnitude of the reaction is small it is interesting to note that the stock market seems to react at the time of announcement of the c p i approximately one month after the price data are collected by the bureau of labor statistics

the fisher hypothesis under different monetary regimes we examine the relation between inflation and nominal interest rates under the various monetary regimes in effect in the united states since the turn of the century our data include a newly constructed time series of short term municipal bond yields observed annually since 1902 the results generally support the hypothesis that after tax nominal yields adjust point for point with rationally forecasted inflation for the postwar years but strongly reject that hypothesis for the preceding years we suggest and offer supporting evidence that the difference between the two subperiods may be attributable to differences in the optimal forecasting technique for each era when forecasting is a costly endeavor

china s energy security perception and reality abstract china now the world s second largest economy is worried about energy security which underpins the core objectives of beijing and the political legitimacy of the communist party of china the purpose of this study is to explore certain popular myths about china s energy security the study consists of six parts after the introduction it formulates the obscure concept of energy security and attempts to contextualize it with chinese characteristics then it explicitly points out that the largest driver of oil demand by china as the world s factory is transport instead of industry next it explores the effectiveness of transnational pipelines as a measure of energy security and explains why they are less effective than many observers have previously assumed furthermore it investigates the global expansion of chinese national oil companies and questions their actual contribution to energy security a few concluding remarks then follow

relative price variability real shocks and the stock market in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions the evidence shows that the negative stock returninflation relations proxy for the adverse effects of relative price variability on economic activity particularly during the seventies when the u s experienced oil supply shocks hence it appears that inflation spuriously affects the stock market in two ways the aggregate output link of fama 1981 and the supply shocks reflected in relative price variability a number of papers have attempted to explain the anomalous negative relations between stock returns and inflation witnessed in the post war period one hypothesis that has held up well in light of empirical evidence suggests that the negative relation between stock returns and unexpected inflation simply reflects the more fundamental positive relation between stock returns and future real variables see e g fama 1981 geske and roll 1983 and kaul 1987 1989 in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions first relative price variability can have detrimental effects on output and employment see e g friedman 1977 and barro 1976 second absolute relative price confusion models of the lucas 1973 type suggest that monetary shocks can induce a positive relation between inflation and relative price variability see e g cukierman 1983 hence the negative stock return inflation relations could simply be a reflection of the negative effects of relative price variability on the stock market we use data for the 1947 1985 period to test the various links of our hypothesis the results indicate that relative price variability is positively related to both expected and unexpected inflation measures relative price variability also has a significant negative effect on output and the stock market more importantly

do forest assets hedge inflation forest assets are commonly viewed as good hedges against inflation the view is based largely however on anecdotal evidence rather than empirical analysis this paper examines the historical relationship between forestry returns and inflation the results suggest that forests in the u s west and south have been superior hedges against higher than anticipated inflation forests in the northeast have been less effective inflation hedges the results also indicate that western and southern forests have been overvalued during periods of relatively high expected inflation markets for forests in the northeast however have been relatively efficient processors of inflation expectations

estimation of the specification error in the fisher equation this paper asks how false is the fisher hypotheis previous work has asked is the fisher hypothesis true the framework here characterizes the specification error in the the fisher equation as model noise following durlauf and hall 1988 1989a 1989b the noise provides a metric for the specification error for the post war period to october 1979 the variance of the noise is small while after that date it is apparently large that is using a method that contains many previous tests of the fisher effect in explaining nominal in explaining nominal interest rate movements mishkin 1991 has criticized this consensus as reflection a common stochastic trend in inflation and nominal interest rates prior to october 1979 the test here is immune to this criticism as i use the ex post real interest rate as the regressand and show that at least prior to october 1979 it obeys a sationary process

liberalisation and the security of gas supply in the uk abstract this paper contests the view held by the current uk government and its industry regulator ofgem that liberalisation is good for security of supply focusing on the downstream aspects of the security of uk gas supply on system security it considers the impact of the different aspects of liberalisation of legal governance supply competition de integration market simulation regulation and the interaction of liberalised gas and electricity markets categorising these impacts in terms of security threats and threats to security response it finds that individually and as a complex collectivity they have increased the risks of supply failure either potential or already realised in a variety of ways from creating increased uncertainty and failing to signal adequate or appropriate investment to legal ambiguity which divorces responsibility from liability and renders legal liability indeterminate ex ante moreover one of the uk government s responses to these increased dangers which it does appear to perceive is revealed as itself paralysed by the liberalisation paradigm the government can only intervene pre emptively with information in attempt to persuade the market to behave as it thinks it should meanwhile however the government has also had to recognise its default responsibility for security of supply and make preparations to intervene in an emergency situation liberalisation can only be challenged when it is already too late

indicators for energy security the concept of energy security is widely used yet there is no consensus on its precise interpretation in this research we have provided an overview of available indicators for long term security of supply sos we distinguished four dimensions of energy security that relate to the availability accessibility affordability and acceptability of energy and classified indicators for energy security according to this taxonomy there is no one ideal indicator as the notion of energy security is highly context dependent rather applying multiple indicators leads to a broader understanding incorporating these indicators in model based scenario analysis showed accelerated depletion of currently known fossil resources due to increasing global demand coupled with increasing spatial discrepancy between consumption and production international trade in energy carriers is projected to have increased by 142 in 2050 compared to 2008 oil production is projected to become increasingly concentrated in a few countries up to 2030 after which production from other regions diversifies the market under stringent climate policies this diversification may not occur due to reduced demand for oil possible benefits of climate policy include increased fuel diversity and slower depletion of fossil resources

real interest rates and inflation an ex ante empirical analysis we develop a method of measuring ex ante real interest rates using prices of index and nominal bonds employing this method and newly available data we directly test the fisher hypothesis that the real rate of interest is independent of inflation expectations we find a negative correlation between ex ante real interest rates and expected inflation this contradicts the fisher hypothesis but is consistent with the theories of mundell and tobin darby and feldstein and stulz we also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty

a simple framework for analysing various real aspects of stabilisation and structural adjustment policies this article shows how a simple geometric framework containing a real model based on the standard two good three factor trade theoretic model and a monetary model of the domestic banking system can be used to analyse the changes in the real and nominal values of various economic variables of concern resulting from stabilisation and structural adjustment policies

monetary nominal income and exchange rate targets in a small open economy abstract in this paper i examine the properties of monetary nominal income and exchange rate targets as stabilization policies in an open economy perfect capital mobility and a wide variety of transitory random shocks is assumed nominal wages are assumed to have been set in advance of the realization of the shocks none of these rules is in general sufficient to minimize the welfare cost of aggregate fluctations and none necessarily dominates all others under the assumption that monetary control is subject to random errors optimal policy implies reactions to all observable shocks and is characterized by heavy exchange market intervention

trend inflation and the nature of structural breaks in the new keynesian phillips curve in this paper we investigate the nature of structural breaks in inflation by estimating a version of the new keynesian phillips curve nkpc in the presence of a unit root in inflation we show that with a unit root in inflation the nkpc implies an unobserved components model that consists of three components a stochastic trend component a component that depends upon current and future forecasts of real economic activity and a stationary component which is potentially serially correlated or a component of inflation that is not explained by the conventional forward looking nkpc our empirical results suggest that with an increase in trend inflation during the great inflation period the response of inflation to real economic activity decreases and the persistence of the inflation gap increases due to an increase in the persistence of the unobserved stationary component these results are in line with the predictions of cogley and sbordone 2008 who show that the coefficients of the nkpc are functions of time varying trend inflation

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

a random walk through the gibson paradox evidence to support the gibson paradox is often given in the form of a simple correlation between the nominal interest rate and the log of price level or in the form of a simple linear regression between these two variables authors then show using standard procedures of statistical inference that the price level possesses a significant coefficient we argue that this class of evidence is spurious since the nominal interest rate and the price level both integrated variables do not form a cointegrated system

is there a unit root in the inflation rate evidence from sequential break and panel data models summary using sequential trend break and panel data models we investigate the unit root hypothesis for the inflation rates of thirteen oecd countries with individual country tests we find evidence of stationarity in only four of the thirteen countries the results are more striking with the panel data model we can strongly reject the unit root hypothesis both for a panel of all thirteen countries and for a number of smaller panels consisting of as few as three countries the non rejection of the unit root hypothesis for inflation is very fragile to even a small amount of cross section variation 1997 john wiley sons ltd

what does the term structure tell us about future inflation abstract this empirical analysis indicates that for maturities of six months or less the term structure of nominal interest rates provides almost no information about the future path of inflation but does provide information about the term structure of real interest rates however as maturities lengthen to nine and twelve months the nominal term structure begins to contain information about future inflation but ceases to provide information about the real term structure these results are explained by differences in the relative variability of expected future inflation changes and real term structure slopes at different points in the term structure

the political economy of economic liberalization two of the major policy problems facing governments of developing countries in the 1 980s have been unsustainable external and internal disequilibria and implementation of politically feasible stabilization cum liberalization programs which become necessary to correct these imbalances this article discusses these crises and subsequent policy reform the analysis suggests that balance of payments and fiscal deficits are frequently the result of use of an incorrect accounting system in a fixed exchange rate economy and of public sector expansion beyond its economically feasible size that governments usually seek to liberalize their economies during a crisis to regain control when the growth of the transfer state has led to generalized tax resistance avoidance or evasion that reduction of the government role will be required to alleviate these crises that sharp departures from past policies rather than gradual reform may be politically necessary and that contrary to the current technocratic opinion on this matter the sequencing of a consistent and credible package of reforms which will most effectively reduce the costs of adjustment is initial liberalization of domestic capital markets simultaneous with cuts in the fiscal deficit followed by floating the exchange rate and then commodity market liberalization with the growing importance of internal monetary fund imf stabilization and world bank structural adjustment programs there has been concern about the proper sequencing of the standard stabilization cum liberalization measures contained in these packages in particular there is grave concern at the very mixed and in some cases disastrous effects of liberalization attempts on incomes and employment in the southern cone of latin america in the late 1970s and early 1 980s much of the existing discussion of the order of liberalization is conducted within the traditional technocratic framework which seeks to determine the welfare cost minimizing deployment of policies in the standard stabilization and 1 this assumes a benevolent and well informed government maximizing a social welfare function

price dynamics in foreign currency futures markets abstract nested tests of samuelson s submartingale and martingale models of price behavior in an efficient futures market find significant autocorrelation at low lags in daily changes of log prices for four of ten currency futures contracts satisfying the assumptions of the statistical tests negative serial correlation following large price changes is also found the analysis controls for bias due to institutional limits on daily price movements simulated trading based on out of sample forecasts suggests the dependencies probably could be exploited by traders who are members of the futures exchange to earn net profits greatly exceeding buy and hold

taxable and tax exempt interest rates the link with inflation abstract a single equation model utilizing taxable tax exempt yield spreads is developed to test restrictions required by the darby feldstein inflation tax hypothesis evidence indicates these restrictions generally can be rejected for post accord data and that there is important information in both yields linking them to inflation

on the constancy of the international real rate of interest abstract this paper develops an alternative method of deriving the ex ante real rate of interest given assumptions regarding capital mobility and ppp it is shown that in equilibrium the ex ante real rate will be equalized across countries using cross sectional regression techniques this real rate can be estimated at each moment in time hence it is possible to develop a time series of estimated real rates derived from cross sectional regressions this estimated real rate series is then used in time series tests of the fisher equation for the u s

assessment of energy security in china based on ecological network analysis a perspective from the security of crude oil supply abstract energy security usually considers both the stability of energy supply and security of energy use and it is receiving increasing attention globally considering the strategic importance and sensitivity to international change of the crude oil supply we decided to examine china s energy security an original network model was established based on ecological network analysis to holistically evaluate the security of the crude oil supply in china using this model we found that the security of the crude oil supply in china generally increased from 2001 to 2010 the contribution of different compartments in the network to the overall energy security resembled a pyramid structure with supply sources at the bottom the consumption sector at the top and the refining and transfer sectors in the middle north and south america made the largest contribution to the security of the crude oil supply in china we provide suggestions to improve the security of the crude oil supply in china based on our results and further scenario analysis the original network model provides a new perspective for energy security assessment which can be used as a baseline to develop other models and policy

estimating the fisher effect and the stochastic money growth process this paper demonstrates that a change in the stochastic process generating money can alter the relationships between money and inflation and between inflation and interest rates the extent to which inflation is forecastable is shown to depend significantly on the extent to which money is forecastable thus the greater the persistence and forecastability of money the greater the likelihood of observing a statistically significant fisher effect us data over the 1953 86 period are used to demonstrate that instability in the fisher effect coincides with changes in the stochastic process generating money there is a significantly stronger fisher effect during a subsample in which money and hence inflation are more predictable