№ 2020/1
MacroeconomicsGRYTSENKO Andrii Andriyovych1, BANDURA Oleksandr 2
1Institute for Economics and Forecasting, NAS of Ukraine
2Institute for Economics and Forecasting, NAS of Ukraine
Features and factors of contemporary inflation dynamics
ABSTRACT ▼
The article considers the features of contemporary inflation, which are difficult to explain within the framework of well-known theories. We used the authors’ CMI-model of economic cycles to explain the phenomena of low inflation in the US economy and relatively low economic growth under the record high employment during 2008-2019. In this model, the aggregate money supply M2 is divided in two parts: 1) neutral (that does not affect the growth rate) and 2) non-neutral (that affects the growth rate). We proved empirically that the implementation of the "quantitative easing" monetary policy through the financial markets (to reduce the short- and long-term interest rates) has little effect on the economic growth rate, but mainly causes the growth of the stock markets, which absorb neutral money supply, holding back the inflation process. However, this policy may cause a financial bubble in the stock markets and increases the probability of a significant correction in the value of financial assets in the case of a new recession. We evaluated the outlooks of the beginning of a new recession in the US economy that can cause a new recession in Ukrainian economy as well. The positive effect from the “quantitative easing” monetary policy is a record duration (for the entire history of observations) of the US recovery that contributed to the record low unemployment. The negative effects of this policy include the least (for the last 50 years) average economic growth rates during the recovery and relatively low level of labor productivity since 2010. At the same time, the existence of developed financial markets and stimuli for investments in financial assets may serve as an effective instrument to hold back the inflation. Therefore, any contributing from all regulators in development of financial markets would be also useful for Ukraine.
Keywords:inflation, business cycle, financial market, monetary policy, (non)neutral money, recession, growth rate, financial index.
JEL: E30, E31, E32, E37
Article in English (pp. 77 - 93) |
Article in Russian (pp. 77 - 93) | Download | Downloads :498 |
Article in Ukrainian (pp. 77 - 93) | Download | Downloads :480 |
REFERENCES ▼
1. Bandura, O.V. (2016). The general model of economic cycles – a model of cumulative inefficiency. Ekon. teor. – Economic theory, 1, 86-100 [in Ukrainian].
doi.org/10.15407/etet2016.01.086
2. Polterovich, V. (1997). Crisis of economic theory. The unknown economy: a report at a seminar at TSEMI RAS. 1997. Retrieved from
mathecon.cemi.rssi.ru/vm_polterovich/files/Crisis_Economic_Theory.pdf [in Russian].
3. Ader, D. (2018). U.S. recession looms, yield curve inversion or not. Bloom-berg Prophets. March 8. Retrieved from
www.bloomberg.com
4. Bauer, M., Mertens, T. (2018). Economic forecast with the yield curve. Fed-eral Reserve Bank of San-Francisco Economic Letter, Economic Research 2018–07. Retrieved from
www.frbsf.org
5. Bernoth, K., König, P. Raab, C. (2015). Large-Scale Asset Purchases by Central Banks II: Empirical Evidence. DIW Roundup: Politik im Fokus, No. 61. Re-trieved from
hdl.handle.net/10419/111846
6. Bhatnagar, S., Cormier, A-K., Hess, K., Leon-Manlagnit, P. et al. (2017). Low Inflation in Advanced Economies: Facts and Drivers. Staff Analytical Note by International Economic Analysis Department. Bank of Canada. P. 20. Retrieved from
www.bank-banque-canada.ca
7. Boesler, M. (2018). Fed Chairman Powell Unravels Inflation Riddle. Bloom-berg Markets. April 6. Retrieved from
www.bloomberg.com/news/articles/2018-04-06/who-needs-an-economics-ph-d-as-powell-unravels-inflation-riddle
8. Chappatta, B. (2018, June 19). Pension plans exert an invisible force on the yield curve. Bloomberg news. June 19. Retrieved from
www.bloomberg.com/view/articles/2018-06-19/pension-plans-exert-pressure-on-the-bond-yield-curve?utm_medium=email&utm_source=newsletter&utm_term=180619&utm_campaign=sharetheview
9. Ho-Yin, Y., King-Tai, L. (2011). The Effects of Quantitative Easing on Infla-tion Rate: A Possible Explanation on the Phenomenon. European Journal of Eco-nomics, Finance and Administrative Sciences, 41, 7. Retrieved from
researchdb.hsu.edu.hk/assets/upload/103/The_Effects_of_Quantitative_Easing_on_Inflation_Rate_-_A_Possible_Explanation_on_the_Phenomenon_(2011).pdf
10. Meinusch, A., Tillmann, P. (2014). The macroeconomic impact of uncon-ventional monetary policy shocks. Joint Discussion Paper Series in Economics. Working paper No. 26-2014; Leibniz Information Centre for Economics, 35. Re-trieved from
hdl.handle.net/10419/102367
11. Orphanides, A. (January, 2002). Monetary policy rules and the Great Infla-tion. Division of Monetary Affairs, Board of Governors of the Federal Reserve Sys-tem. Meeting of the American Economic Association, Atlanta, GA.
doi.org/10.17016/FEDS.2002.08
12. Smith, N. (May 1, 2018). What Causes Recessions. Bloomberg Econom-ics, Econ Grapples.
13. Smialek, J. (2017, October 15). Yellen calls inflation the "Biggest surprise" in the Economy. Bloomberg Markets. Retrieved from
www.bloomberg.com/news/articles/2017-10-15/yellen-says-fed-to-raise-rates-gradually-as-inflation-picks-up