Does Output Gap, Labour's Share or Unemployment Rate Drive Inflation?

Lanne, Markku; Luoto, Jani

doi:10.1111/obes.12041

Cited by 6 publications

(5 citation statements)

References 23 publications

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“…Interestingly, there is strong evidence in favor of the reverse Granger causality from the GDP growth to inflation, with the difference in the log PLs around 10. There is little evidence in the previous literature in favor of Granger causality from the GDP growth to inflation in data including the period after the mid 1980s (see, for example, Lanne and Luoto, , and references therein) and, based on the causal VAR(3, 0) model, also we were unable to find Granger causality in either direction.…”

Section: Noncausal Var For Us Gdp Growth and Inflationcontrasting

confidence: 76%

Noncausal Bayesian Vector Autoregression

Lanne

Luoto

2016

J of Applied Econometrics

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SUMMARYWe consider Bayesian analysis of the noncausal vector autoregressive model that is capable of capturing nonlinearities and effects of missing variables. Specifically, we devise a fast and reliable posterior simulator that yields the predictive distribution as a by-product. We apply the methods to postwar US inflation and GDP growth. The noncausal model is found superior in terms of both in-sample fit and out-of-sample forecasting performance over its conventional causal counterpart. Economic shocks based on the noncausal model turn out to be highly anticipated in advance. We also find the GDP growth to have predictive power for future inflation, but not vice versa.

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Section: Noncausal Var For Us Gdp Growth and Inflationcontrasting

confidence: 76%

Noncausal Bayesian Vector Autoregression

Lanne

Luoto

2016

J of Applied Econometrics

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“…While underlying theories (such as the quantity theory of money) motivating the relationship between inflation and its determinants are well-established and provide a proper explanation for inflation determination, these theories only cover a simple and reduced-form model of inflation process while the NKPC framework can supply an in-depth understanding of the inflation process (Keen Meng, 2016). 3 Following Gali and Gertler (1999), Chowdhury et al (2006), Tillmann (2009, and Lanne and Luoto (2014), Behera et al (2018) and , the hybrid open-economy version of the NKPC for Vietnam is specified as follows:…”

Section: Empirical Literature Review and Model Specificationmentioning

confidence: 99%

“…However, there is a variety of ways to derive this variable. Some scholars prefer the use of a linear trend model (Abbas and Sgro, 2011;Abbas et al, 2016;Bleaney and Francisco, 2018;Florio, 2018) or quadratic trend model (Abbas and Srgo, 2011;Lanne and Luoto, 2014) to derive the potential output and then compute the output gap. Others (Hahn, 2003;Ramakrishnan and Vamvakidis, 2002;Batini et al, 2005;Paul, 2009) make use of the HP filter to extract potential GDP and then calculate the output gap as the difference between actual and potential GDP.…”

Section: Empirical Literature Review and Model Specificationmentioning

confidence: 99%

What Drives Persistently High Inflationary Pressures in Vietnam? Some Evidence From the New Keynesian Curve Framework

Nghiem

Narayan²

2022

BEMP

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In this study, we revisit the inflation process in Vietnam through the New Keynesian Phillips Curve (NKPC) model. We use monthly and quarterly data frequencies to track the forces driving inflationary pressures up to a quarter. Interest rate, an important determinant of inflation, is often found to give theoretically inconsistent result. Hence, we examine different interest rates, including, the central bank policy rate, lending interest rate and one-month interbank interest rates. Further, there is no unified approach to measuring the output gap – an important variable of the model - in the literature which may affect the results. Therefore, in this study, output gap is measured using two different approaches, namely, the linear trend model and the Hodrick-Prescott (HP) filter to see whether different measurement approaches matter for the signs and significance of this variable. Our key findings show that while the effects of interest rate vary by its type, measurement of output gap does not matter for the determination of inflation in Vietnam. What matters is whether the inflation model is quarterly or monthly. We explain the main determinants of inflation and provide some policy implications in the paper.

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“…To begin, Equation 5 Estimation results for Equation (5) are provided in Table 6. Because Lanne and Luoto (2014) find the most common control variables (i.e., laborÕs share of total income, the output gap, and the unemployment rate) are not empirical drivers of US inflation, as a preliminary baseline we first estimate Equation (5) without the unemployment rate and output gap (see column (1)). The coefficient on lagged regulatory growth is statistically significant, equaling 0.0687 and implying that a 10% increase in total regulations is associated with a rise in consumer prices by an additional 0.687%.…”

Section: Calculating Price Changes By Income Groupmentioning

confidence: 99%

How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation

2017

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This study is the first to measure the impact of federal regulations on consumer prices. By combining consumer expenditure and pricing data from the Bureau of Labor Statistics, industry supply-chain data from the Bureau of Economic Analysis, and industry-specific regulation information from the Mercatus CenterÕs RegData database, we determine that regulations promote higher consumer prices, and that these price increases have a disproportionately negative effect on low-income households. Specifically, we find that the poorest households spend larger proportions of their incomes on heavily regulated goods and services prone to sharp price increases. While the literature explores other specific costs of regulation, noting that higher consumer prices are a probable consequence of heavy regulation, this study is the first to provide a thorough empirical analysis of that relationship across industries. Irrespective of the reasons for imposing new regulations, these results demonstrate that in the aggregate, the negative consequences are significant, especially for the most vulnerable households.

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Does Output Gap, Labour's Share or Unemployment Rate Drive Inflation?

Cited by 6 publications

References 23 publications

Noncausal Bayesian Vector Autoregression

Noncausal Bayesian Vector Autoregression

What Drives Persistently High Inflationary Pressures in Vietnam? Some Evidence From the New Keynesian Curve Framework

How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation

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