Table 1 lists inflation (All items) for the 47 regions broadly in the order of the location of the regions from north to south and suggests that all regions have experienced a relatively low inflation by international standards of around 1.5% per annum, ranging from 1.4% in Nara, Yamaguchi and Okinawa to 1.8% in Aomori. Inflation volatility in terms of standard deviations seems to be very similar among regions, ranging from 2.3 in Okinawa to 2.8 in Ao- mori and Akita. In this regard, prices seem to be most stable in Okinawa. We also plot the average, minimum and maximum regional inflation (Figure 1), showing that inflation is time-varying and reaches relatively high levels (around 10%) at times of oil shocks. In contrast, inflation has been stable and low in more recent periods when Japan underwent economic recession and deflation.
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heterogeneity and autocorrelation. We used only the secondary and tertiary sectors in this analysis since the primary sector is insignificant in size and is converging within a country. Generally the results are consistent with our expectations; all key variables have a correct sign often with statistical significance. Namely, regional differences in industrial structure, demographic factors and deposits are negatively correlated with regional inflation. Thus, we confirm that a similar level of regional inflation can be observed among similar regions in terms of these three criteria. This result is generally unchanged even when correlations with a different window size are employed.
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The link between decentralization and inflation as one of the key aspects of macro economic stability has been surveyed by a number of studies and the findings are generally inconclusive. Using sample data of developing and developed countries, previous study found that decentralization correlates with lower inflation in developed countries and vice versa, it correlates with higher inflation in developing countries. The key question is what factors play a role in controlling inflation in a decentralized system. This paper is to argue that the coordination problem is the main issue in controlling inflation in a decentralized system, particularly in developing countries. The empirical analysis is to determine the effect of decentralization on regional inflation in Indonesia and whether institutions play a role in the recent downward trend of inflation in Indonesia. A panel data that includes 33 observations of the Indonesian regions (provinces) is constructed with a dummy variable representing the existence of institution. In addition, this study analyzes whether decentralization supports the convergence in regional inflation and also the pattern of spatial correlation in regional inflation. The assumption is that there are some degrees of collective institutional coordination and cooperation with the establishment of Regional Inflation Task Force (RITF).
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This research gives several important conclusions, first, the empirical test shows the CPI inflation in Jakarta is persistent. Similar result is shown in a more disaggregated group, where the administered price inflation, and volatile food inflation in Jakarta is classified to be very persistent .Comodity groups with highest degree of persistence are Processed Foods, Beverages and Tobaccos and Health. On commodity level, Rice, Beef, Cooking Oil, Sugar, and Dwelling. In Jakarta, the comodity group mostly need 5-12 months to return to its average prior the shock, while for the mostly commodity needs between 3-12 months. Second, in accordance with the hybrid NKPC model result, it is found that the Jakarta»s inflation is a combination between forward and backward looking behavior, This is in line with the result of national inflation behavior (Alamsyah, 2008). Third, the cause of high inflation persistence degree in Jakarta are because of the high of inflation persistence degree of volatile food and administered price groups. This volatile food and administered price inflation affect the inflation expectation, hence will complicate the inter regional inflation control.
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9 Multi departmental and sector coordination is the focus of RITF in controlling the volatility of regional inflation since a lot of issues in controlling regional inflation are caused by the lack of coordination and collaboration within the internal departmental of local governments. Although RITF is commonly engaged in the formulation of policy to control inflation, there are some cases where RTIF are directly involved in supporting programs that aim to control inflation. Such program would be the development of regional information center for market prices, particularly for food commodities. In term of coordination between RITF and central government agencies, a national coordination meeting is held annually. In addition, a national coordinating committee (National Inflation Task Force or NITF) is also established to strengthen the communication, coordination and collaboration between RITF and central government. Bank Indonesia has actively participated in both the NITF and RITF as part of an effort to meet the inflation target.
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indicates that a higher degree of fiscal decentralization ratio correlates with higher regional inflation rate. This also implies that by giving more power to govern to the local governments and an authority to use all means and resources in their respective regions may not actually have a positive impact in controlling inflation in the regions. Based on the literature, a larger contribution of government spending (a higher degree of fiscal decentralization) could potentially cause higher inflation, particularly when the spending is directed toward unproductive programs or activities. In addition to wasteful spending, rising debt, corruption and rent-seeking may also increase inflation since it potentially boosts the growth rate of money supply. Public sector corruption and graft in Indonesia’s regions after decentralization is believed to be the contributor of inefficient allocation of resources including the capital budget for infrastructure development. These explain the finding of positive correlation between fiscal decentralization and regional inflation.
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The basic statistics of regional in‡ation are shown in Tables 1 and 2. The …rst table shows that discrepancies may exist among regional in‡ation within a country. In particular, Okinawa has experienced lower in‡ation than other regions on average. Many regions experienced in‡ation of around 2 percent, with the Okinawa region about 1.6 percent. A similar result is also reported in the correlation matrix in Table 2. It shows that Okinawa exhibited a less close relationship with other regions. We believe that this outcome is due partly to the fact that Okinawa is a relatively new region, and thus development of its economic system still lags behind others. 8 This
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This paper empirically examines developments in price and in‡ation in China from 1991 to 2005. Unlike most previous studies, their determinants were inves- tigated in the panel data context, and our …ndings are as follows. First, using the panel cointegration method, we con…rm a long-run relationship between price, money and output. Secondly, we provide evidence that in‡ation can be explained by economic fundamentals such as money, credits, productivity, and exchange rate growth. Furthermore, while an increased concern about regional discrepancies in recent years, this relationship is more sensitive to the sample period than to the region type. Notably, money does not seem to be closely associated with in‡ation over recent years.
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Designing an effective and reliable monetary policy is necessary to ensure national price stability. To achieve the desired level of inflation, monetary authority can employ quantity-based approach, which make use of monetary aggregate as its instrument, or price-based approach, which exploit interest rate. The utilization of interest rate as the monetary operational target may have its own advantages in directing national inflation, but then again interest rate is a one-for-all ‘nationally-designed’ instrument. Different from interest rate, money supply can be regulated in regional level, accommodating each region’s economic needs. Since inflation is a regional phenomenon, a detailed assessment of each region’s idiosyncrasy is a necessity. If authorities are concerned about the inflationary gap among regions, they need policy instrument(s) which is or are capable of managing regional inflation evenly. Through this study, we found that each region in Indonesia have different responses on monetary policy instruments.
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The results of this paper has important policy implications, which may be related to either the inflation-targeting process or the flexible exchange rate regime: (i) if CPI groups in different regions are affected differently by monetary policy conducted under inflation-targeting regime (i.e., different regions or sectors are affected differently by the policy instruments such as money aggregates, exchange rate, and interbank rates), then inflation-targeting regime may be the reason for this result; (ii) alternatively, if CPI groups in different regions have different imported good shares, the volatile exchange rate (due to the flexible exchange rate regime) may be a potential reason for the results of this paper. In particular, the Central Bank of Turkey implemented its monetary policy with both interest rates and foreign exchanges until the end of 1999, with foreign exchanges in year 2000, and with short-term interest rates since 2001. These different monetary policy tools may affect prices of different products differently; e.g., exchange rates affect prices of tradable goods more than non-tradable goods. If each geographic region has a different weight on these two set of prices, it is plausible that the flexible exchange rate regime also has its influence on the convergence of regional inflation rates. Understanding these linkages across regions and sectors is the key to a thorough monetary policy, at both national and regional levels.
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This study explores the relationship between Chinese housing markets and inflation during pre- and post- financial crisis time periods, conditional on regional markets rather than the country in aggregate, and an intervention effect of government policy restricting property speculation in some markets. This allows us to identify and test factors that influence inflation hedging characteristics in diverse Chinese real estate markets. 5 We include regional supply- and demand-side factors in our analysis, as the spatial structure in Chinese cities can become distorted by local differentials in capital cost and income. We focus on local personal disposable income as our demand-side indicator variable and total housing mortgage loans outstanding as a percentage of domestic loans for real estate investment as a supply-side indicator. The latter increased from 3.9% in 2000Q1 to 13.2% in 2012Q4. 6 We expect regional inflation hedging disparities can be explained by regional real estate
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The rational expectations hypothesis for survey and model-based inflation forecasts − from the Survey of Professional Forecasters and the Greenbook respectively − is examined by properly taking into account the persistence characteristics of the data. The finding of near-unit-root effects in the inflation and inflation expectations series motivates the use of a local-to-unity specification of the inflation process that enables us to test whether the data are generated by locally non-stationary or stationary processes. Thus, we test, rather than assume, stationarity of near-unit-root processes. In addition, we set out an empirical framework for assessing relationships between locally non-stationary series. In this context, we test the rational expectations hypothesis by allowing the co-existence of a long-run relationship obtained under the rational expectations restrictions with short-run "learning" effects. Our empirical results indicate that the rational expectations hypothesis holds in the long run, while forecasters adjust their expectations slowly in the short run. This finding lends support to the hypothesis that the persistence of inflation comes from the dynamics of expectations.
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A significant benefit of intact globe testing is the ability to estimate the regional variation of stiffness across the cornea, limbus and sclera. Previous experimental ana- lysis of these variations has mostly been limited to sep- arated corneas and scleras, obtained from different donors in most cases. The limbal region is commonly used for clamping the separated cornea and sclera speci- mens and hence is not usually characterised. Additionally, the clamps provide unrealistic boundary conditions, which are likely to affect the behaviour obtained experimentally in the adjacent areas. Therefore, the procedure described in this study is of particular benefit for obtaining material stiffness properties at the corneoscleral junction, providing the eye with physiologic loading and supporting condi- tions and correlating the behaviour in the cornea to that in the sclera.
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28. As an aside, note that we have compared each core inflation series to the actual parent series. However, it is quite common in core inflation studies to compare core inflation series to some assumed trend series. For example, some authors look at whether the core inflation improves upon simple autoregressions of the actual inflation rate, whereas others take a moving-average trend as a proxy for core inflation and then assess the candidate core against the proxy (e.g., via lowest variance or RMSE criteria). However, such methods are questionable because they are based on the assumption that we already know how to model the trend correctly, and this begs the very point at issue, that is, that the whole purpose of the investigation is to identify the best trend, given that we are working here with a trend-based interpretation of core inflation. We can also put this point a different way: if we think that we already know what the best trend is, then the investigation is redundant, because we already have the answer; and, on the other hand, if we do not know what the best trend is, then we cannot use some arbitrary rule as a proxy for it. Any significant difference between the candidate core inflation series and the proxy is then uninterpretable without further information, because we could not dismiss the possibility that it is the proxy rather than the core inflation measure that is wrong.
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To test the persistence, we estimate a simple autoregressive process on monthly year-on- year inflation rate. The sum of the auto-regressive coefficients provides the degree of persistence. Majority of the lag order selection tests select a model with 3 lags. We run the selected model for the entire sample as well as six phases. The sum of the coefficients and the results of the Wald Chi-square test of joint significance of the coefficients indicate that barring Phase II, the composite sum of coefficients is significant across all specifications (Table 1). The extent of persistence is highest in the most recent phase, implying that a positive shock will continue impact inflation over a longer time.
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conventional monetary policies. The US constitutes the best-documented case. There are at least four important phases known in its conduct of monetary policy: policy oriented toward unemployment in the 1970s, policy focused more on money after the 1979 oil shocks, policy focused on exchange rate and financial stability after the 1980s, and the unconventional monetary policies since 2008. 16 On January 25, 2012, The Fed adopted an explicit inflation target of 2%, but nevertheless continued to adopt a monetary policy with two main objectives, price stability and economic growth. Furthermore, the US monetary policy is characterized by emphasis on rules, but with a high degree of discretion, raising uncertainty about inflation. The UK is a major country to have adopted an explicit inflation target, which it did in 1992. In May 1997, the Bank of England acquired operational independence in setting its short-term interest rate. There are some similarities between the monetary histories of the US and the UK, in particular regarding their conduct of monetary policies and inflation targeting (see, e.g., Conrad and Karanasos, 2005). For the euro area, the European Central Bank adopted an implicit inflation target policy of around 2%, although its policy covers several EU countries that did not apply an inflation target before 1999. However, ECB has only one stated objective, price stability. South Africa adopted an informal inflation target in 1990 and a formal one in 2000, ranging between 3% and 6%. Finally, China’s monetary policy aims to maintain currency stability and improve economic growth. China does not follow inflation targeting.
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1. Hyperinflation – It is a very high rate of inflation, usually a rate in excess of 50%. History has some excellent examples of hyperinflation. In Germany, inflation exceeded 1 million % in 1923. It was said that a horse cart full of money would not buy even a newspaper. Right now, Zimbabwe is having an inflation of 1 million %. They have to issue currency of $500 Million dollar (I am not kidding!!) which could only buy a lunch at McDonalds. 2. Deflation – It is the decrease in the general price level of goods and services only when annual inflation is below 0% resulting in the real value of money. Hence, it is sometimes called “negative inflation”. Japan suffered from deflation for almost a decade in 1990s. To control recession and Central Bank of Japan was forced to have a negative interest rate on deposit for over a decade.
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However, empirical studies showed conflicting results, divided between two components: the supporters of the strategy of inflation targeting which approved the effectiveness of inflation targeting on the macroeconomic performance, with low inflation and stable growth (Posen and Mishkin, 1998; Bernake and al 1999;. Landerreche and al 2001; Johnson, 2002; Da Silva and Portugal, 2002; Neuman and Von Hagen, 2002; Choi and al. 2003; Levin and al. 2004; Ghosh and al. 2014). These economists noted that inflation targeting ensures the clarity and credibility of the commitment of the Central Bank towards its goal of minimizing the rate of inflation and keeping its rate low and close to the target level. In addition, inflation targeting aligns the inflation expectations of the monetary authorities, reducing the inflationary impact of economic shocks and creates a better allocation of the monetary resources. Thus, the strategy of inflation targeting provides the countries adopting this regime a marked improvement in economic performance as measured by the trend of inflation and growth.
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the increment of inflation, namely display a stabilizing behavior in both the short and the long run (for all lags): In the short and long run the effect of inflation uncertainty on inflation is negative and strongly significant. The results obtained for the last period is consistent with the policies adopted by the CBRT after 1986. During this time period CBRT adopted four different monetary policy regimes to have a low and stable inflation rate: Monetary targeting regime (1990-2005), exchange rate anchor policy (2000-2001), implicit and explicit and inflation targeting regimes (2002-2005 and 2006-now). Econometric results of this study are in line with findings of these studies on the Economy of Turkey: Nas and Perry (2000), Berument et al (2001), Erkam (2008), Karahan (2012). 5. Conclusion
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In Russia, business confidence stabilised at a low lev- el. Even if the recession ended this winter, a quick re- covery is not to be expected. Rising unemployment, falling real incomes and high inflation rates (of cur- rently around 15 percent) have led to substantial loss- es in purchasing power. Although the key monetary policy rate, the CBR key rate, was gradually reduced from 17 percent at the end of 2014 by 6 percentage points during the first half of 2015, the cost of debt financing remains high. In addition, Russian banks still have very limited opportunities to refinance on international capital markets. Given the high inflation rate and poor financing conditions, private consump- tion and investment are hardly going to support growth. Positive impulses continue to result from the enforced import substitution programme that is fund- ed through the State Reserve Fund and the National Prosperity Fund (the volume of both funds totals ap- proximately 150 billion US dollars, and 12 percent of GDP). Through the weak ruble, foreign trade is ex- pected to contribute positively to GDP growth. Overall the slight upward trend nevertheless results in a negative growth rate of – 0.2 percent for this year. However, much will depend on the evolution of com- modity prices and the geopolitical situation. The downside risks therefore remain high.
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