AN ANALYSIS OF THE RELATIONSHIP BETWEEN INFLATION AND INFLATION VOLATILITY IN EMERGING ECONOMIES / Gelişmekte Olan Ülkelerde Enflasyon ve Enflasyon Oynaklığı Arasındaki İlişki Üzerine İnceleme

Abstract

The relationship between inflation and its volatility has been analyzed extensively in the macroeconomics literature. Most studies concluded that a strong and positive empirical relation exists between the variables. Over time, the topic was analyzed in more theoretical setups and the hypothesis that there exists a strong and positive relationship between inflation and its volatility came to be known as the Friedman-Ball hypothesis and was analyzed for many country groups and time periods. In contrast to these studies, especially after the 2008 financial crisis, other studies established that the relation could be non-monotonic. In the present study, the relation between inflation and its volatility has been analyzed for BRICS economies and the Euro area for the period 2002-2020 using two different inflation measures. We find that the Friedman-Ball hypothesis is confirmed when a long-term inflation measure is used and partly refuted when a short-term inflation measure is used. An implication is that the results are contrasting for emerging economies and for different inflation measures.

Keywords

• Inflation volatility
• BRICS economies
• Friedman-Ball hypothesis

GELİŞMEKTE OLAN ÜLKELERDE ENFLASYON VE ENFLASYON OYNAKLIĞI ARASINDAKİ İLİŞKİ ÜZERİNE İNCELEME / An Analysis of The Relationship Between Inflation And Inflation Volatility In Emerging Economies

Abstract

Enflasyon ve enflasyon oynaklığı arasındaki ilişki, makroekonomi literatüründe kapsamlı olarak incelenmiştir. Araştırmacılar 1970’li yıllarda iki veri arasındaki ilişkiyi kuvvetli ve pozitif olarak ortaya çıkan bir ampirik bulgu olarak ortaya koyarken, zamanla konu, daha teorik bir çerçeveye oturtulmuştur. Friedman-Ball hipotezi olarak adlandırılan bu tez, zamanla birçok ülke grubu ve zaman dilimi için incelenmiştir ve tasdik edilmiştir. Özellikle 2008 krizinden sonra bazı araştırmacılar ilişkinin monotonik olmayabileceğini de öne sürmüşlerdir. Bu çalışmada, enflasyon ile enflasyon oynaklığı arasındaki ilişki, BRICS ülkeleri ve Avro bölgesi için 2002-2020 aralığı için incelenmiştir. İki farklı enflasyon ölçüsünün kullanıldığı ve 2008 krizi öncesi ve sonrasının da incelendiği analizin bulguları özetle, uzun vadeli enflasyon ölçüsü kullanıldığında Friedman-Ball hipotezinin doğrulandığını, kısa vadeli enflasyon ölçüsü kullanıldığında ise hipotezin kısmen doğrulandığı, kısmen reddedildiğini ortaya koymaktadır. Bunlarla beraber sonuçlarımız hipotezin, gelişmekte olan ülkelerde, gelişen ülkelere kıyasla daha çok farklılık arz ettiğini ortaya koymaktadır.

Keywords

• Enflasyon oynaklığı
• BRICS ülkeleri
• Friedman-Ball hipotezi

References

1. Ball, L. (1992). Why Does High Inflation Raise Inflation Uncertainty?. Journal of Monetary Economics, 29 (3), 371-388.
2. Ball, L. M. (2013). The Case For Four Percent Inflation. Central Bank Review, 13 (2), 17.
3. Ball, L., Cecchetti, S. G. (1990). Inflation And Uncertainty At Short And Long Horizons. Brookings Papers on Economic Activity, 1990 (1), 215-254.
4. Barnett, W. A., Jawadi, F., & Ftiti, Z. (2020). Causal Relationships Between Inflation And Inflation Uncertainty. Munich Personal RePEc Archive, Erişim Adresi: https://mpra.ub.uni-muenchen.de/101682/1/MPRA_paper_101682.pdf
5. Belsley, D. A., Kuh, E., & Welsch, R. E. (2005). Regression Diagnostics: Identifying Influential Data And Sources Of Collinearity. John Wiley & Sons.
6. Berument, H., Yalcin, Y., & Yildirim, J. (2009). The Effect of Inflation Uncertainty On Inflation: Stochastic Volatility In Mean Model Within A Dynamic Framework. Economic Modelling, 26 (6), 1201-1207.
7. Blanchard, O., Dell’Ariccia, G., & Mauro, P. (2010). Rethinking Macroeconomic Policy. Journal of Money, Credit and Banking, 42, 199-215.
8. Büyükakın, T. (2008). Phillips Eğrisi: Yarım Yüzyıldır Bitmeyen Tartışma. İstanbul Üniversitesi Siyasal Bilgiler Fakültesi Dergisi, (39), 133-159.

9. Coibion, O., Gorodnichenko, Y., & Wieland, J. (2012). The Optimal Inflation Rate In New Keynesian Models: Should Central Banks Raise Their Inflation Targets In Light Of The Zero Lower Bound?. Review of Economic Studies, 79 (4), 1371-1406.
10. Driffill, J., Mizon, G. E., & Ulph, A. (1990). Costs of Inflation. Handbook of Monetary Economics, 2, 1013-1066. Fountas, S. (2001). The Relationship Between Inflation and Inflation Uncertainty in The UK: 1885–1998. Economics Letters, 74 (1), 77-83.
11. Friedman, M. (1977). Nobel Lecture: Inflation and Unemployment. Journal of Political Economy, 85 (3), 451-472.
12. Gordon, R. J. (1971). Steady Anticipated Inflation: Mirage Or Oasis?. Brookings Papers on Economic Activity, 1971 (2), 499-510.
13. Grier, K.B., Perry, M.J., 1998. On Inflation and Inflation Uncertainty in The G7 Countries. Journal of International Money and Finance. 17, 671–689.
14. Hartmann, M., & Herwartz, H. (2012). Causal Relations Between Inflation And Inflation Uncertainty-Cross Sectional Evidence In Favour Of The Friedman–Ball Hypothesis. Economics Letters, 115 (2), 144-147.
15. Hutchison, M. M., & Walsh, C. E. (1998). The Output‐Inflation Tradeoff And Central Bank Reform: Evidence From New Zealand. The Economic Journal, 108 (448), 703-725.
16. Karras, G. (2017). Is The Relationship Between Inflation And Its Volatility Asymmetric? US Evidence, 1800–2016. The Journal of Economic Asymmetries, 16, 79-86.
17. Lawton, N., & Gallagher, L. A. (2020). The Negative Side Of Inflation Targeting: Revisiting Inflation Uncertainty In The EMU. Applied Economics, 52 (29), 3186-3203.
18. Logue, D. E., & Willett, T. D. (1976). A Note on the Relation between the Rate and Variability of Inflation. Economica, 43 (170), 151-158.
19. Okun, A. M. (1971). The Mirage Of Steady Inflation. Brookings Papers on Economic Activity, 1971 (2), 485-498.
20. Phillips, A. W. (1958). The Relation Between Unemployment And The Rate Of Change Of Money Wage Rates In The United Kingdom, 1861-1957. Economica, 25 (100), 283-299.
21. Rotemberg, J. J., & Woodford, M. (1997). An Optimization-Based Econometric Framework For The Evaluation Of Monetary Policy. NBER Macroeconomics Annual, 12, 297-346.
22. Samuelson, P. A., & Solow, R. M. (1960). Analytical Aspects Of Anti-Inflation Policy. The American Economic Review, 50 (2), 177-194.
23. Smets, F. (2018). Financial Stability And Monetary Policy: How Closely Interlinked?. 35th issue (June 2014) of the International Journal of Central Banking.
24. Sunel, E. (2018). Welfare Consequences of Gradual Disinflation in Emerging Economies. Journal of Money, Credit and Banking, 50 (4), 705-755.
25. Svensson, L. E. (1997). Inflation Forecast Targeting: Implementing And Monitoring Inflation Targets. European economic review, 41 (6), 1111-1146.
26. Taylor, J. B. (1981, January). On The Relation Between The Variability Of Inflation And The Average Inflation Rate. In Carnegie-Rochester Conference Series on Public Policy (Vol. 15, pp. 57-85). North-Holland.
27. Thornton, J. (2007). The Relationship Between Inflation And Inflation Uncertainty In Emerging Market Economies. Southern Economic Journal, 858-870.
28. Ueda, K., & Valencia, F. (2014). Central Bank Independence And Macro-Prudential Regulation. Economics Letters, 125 (2), 327-330.
29. Ungar, M., & Zilberfarb, B. Z. (1993). Inflation and its Unpredictability-Theory and Empirical Evidence. Journal of Money, Credit and Banking, 25 (4), 709-720.
30. White, H. (1984). Asymptotic Theory for Econometricians, Academic Press, New York.
31. Woodford, M. (2003). Interest and prices: Foundations Of A Theory Of Monetary Policy. Princeton University Press.