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Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics
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Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Economics and Finance".

Deadline for manuscript submissions: closed (30 September 2022) | Viewed by 20362

Special Issue Editor

Prof. Dr. Antonio Ribba

E-Mail Website
Guest Editor
Dipartimento di Economia Politica, Universita di Modena e Reggio Emilia, 41121 Modena, Italy
Interests: applied macroeconomics; monetary and fiscal policy; time series analysis; business cycle fluctuations

Special Issue Information

Dear Colleagues,

This Topical Collection welcomes contributions on the dynamic interactions among monetary policy, inflation and unemployment. The contributions may concern both theoretical and applied issues.

As far as monetary policy is concerned, in the most recent decade, zero lower bound on interest rates and the deepness of the economic and financial crises have stimulated the adoption of unconventional monetary policies by central banks. Therefore, we are especially interested in research oriented towards the identification of monetary policy disturbances in this new economic context, and towards studying the dynamic responses of inflation and unemployment, by using structural VAR models and other multivariate time-series techniques. The responses of inflation and unemployment to changes in monetary policy and other macroeconomic shocks also relate to the old-but-still-timely theme of the Phillips curve. Although the short-term inverse relationship between these two variables seems to periodically disappear in industrialized countries, it remains a building block of the majority of business-cycle models. Moreover, one branch of the literature has also investigated the possibility of long-term effects induced by economic recessions on the unemployment rate, that is, on the hysteresis in unemployment. Hence, another important question that may be worth investigating concerns the possible long-term effects exerted on the unemployment rate by the Great Recession and/or by the more recent collapse of the world economy induced by the COVID-19 pandemic.

The aim is to provide contributions that offer new evidence and insights into such issues. This Topical Collection will be published in printed book format if more than seven papers are accepted for publication.

Prof. Dr. Antonio Ribba
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • Monetary Policy
  • Unconventional Monetary Policy
  • Inflation
  • Inflation Expectations
  • Unemployment
  • Business Cycle Fluctuations
  • Phillips Curve
  • Hysteresis
  • Structural VARs
  • Multivariate Time Series Analysis

Published Papers (7 papers)

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Research

13 pages, 372 KiB  
Article
Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa
by Adedoyin Isola Lawal, Afees Adebare Salisu, Abiola John Asaleye, Ezeikel Oseni, Bukola Bose Lawal-Adedoyin, Samuel Olatunde Dahunsi, Emmanuel Oluwasola Omoju, Abigail Oyeronke DickTonye, Elizabeth Bolatito Ogunwole and Abiola Ayopo Babajide
J. Risk Financial Manag. 2022, 15(6), 235; https://doi.org/10.3390/jrfm15060235 - 26 May 2022
Cited by 9 | Viewed by 2767
Abstract
This paper examined the nexus between economic growth and exchange rate, remittances, trade, and agricultural output based on data sourced from 1980 to 2018 for 10 selected African economies. We employed both the Dumitrescu and Hurlin time-domain Granger causality test and the Croux [...] Read more.
This paper examined the nexus between economic growth and exchange rate, remittances, trade, and agricultural output based on data sourced from 1980 to 2018 for 10 selected African economies. We employed both the Dumitrescu and Hurlin time-domain Granger causality test and the Croux and Reusens frequency domain Granger causality test. Results from the time-domain test suggests that causality only exists between economic growth and both exchange rate and trade, with no significant relationship between economic growth and both remittances and agricultural output. When we employed frequency domain model in our analysis, the results suggested that there is a bi-directional temporary and permanent causality between economic growth and exchange rate, trade, agriculture, and remittances. Our results suggest the validity of both the J-Curve and Marshall–Lerner hypotheses in the studied economies. Our study offers some relevant policy implications. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
14 pages, 1138 KiB  
Article
Predicting Inflation—A Holistic Approach
by Kujtim Avdiu and Stephan Unger
J. Risk Financial Manag. 2022, 15(4), 151; https://doi.org/10.3390/jrfm15040151 - 28 Mar 2022
Cited by 3 | Viewed by 2819
Abstract
The quantity equation is a well-established, theoretic, long-run concept that has been criticized for a variety of reasons, i.e., that no precise statements about causality or dynamics between money growth and inflation can be inferred from its components. These shortcomings can be tackled [...] Read more.
The quantity equation is a well-established, theoretic, long-run concept that has been criticized for a variety of reasons, i.e., that no precise statements about causality or dynamics between money growth and inflation can be inferred from its components. These shortcomings can be tackled by estimating inflation based upon a holistic approach and the performance of a ceteris paribus analysis for various levels of quantity and velocity of money, as well as GDP. By testing the validity of the quantity equation, it is possible to evaluate possible effects of elevated budget deficits, unprecedented expansions of the monetary base caused by global lockdowns, and a crash in global productivity, on inflation. The main findings of this paper suggest that the level of productivity is the main driver of inflation. The quantity and velocity of money only play a subordinate role in the determination of the inflation level. If inflation is holistically seen as a function of the quantity and velocity of money, as well as general economic productivity, the level of inflation can be very well explained by comparing the supply side with general economic productivity. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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12 pages, 452 KiB  
Article
Monetary Policy Shocks in Open Economies and the Inflation Unemployment Trade-Off: The Case of the Euro Area
by Antonio Ribba
J. Risk Financial Manag. 2022, 15(4), 146; https://doi.org/10.3390/jrfm15040146 - 23 Mar 2022
Cited by 1 | Viewed by 2826
Abstract
In this paper, we show that in order to obtain a sound identification of Euro Area monetary policy shocks, one needs to deal with the interaction of the European Central Bank and the US Federal Reserve. In other words, a proper identification of [...] Read more.
In this paper, we show that in order to obtain a sound identification of Euro Area monetary policy shocks, one needs to deal with the interaction of the European Central Bank and the US Federal Reserve. In other words, a proper identification of monetary policy shocks for an open economy like the Euro Area requires consideration of the US policy rate. Indeed, when we exclude the Federal Funds Rate from an estimated VAR model including a set of Euro Area variables, i.e., Eonia, inflation and unemployment, we detect a wrong sign in the response of inflation to contractionary monetary policy shocks. Moreover, even adding the world price of oil does not help to overcome the problem. Instead, for a sample covering the period 1999–2019, when the Federal Funds Rate and the Euro–Dollar exchange rate are added to the VAR model inflation shows statistically non-significant effects for two years and thereafter decreases. Under this specification of the model, a clear and significant unemployment inflation trade-off emerges. These conclusions are confirmed by using industrial production instead of the unemployment rate in the VAR model. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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15 pages, 3186 KiB  
Article
The COVID-19 Shock: A Bayesian Approach
by Oussama Abi Younes and Sumru Altug
J. Risk Financial Manag. 2021, 14(10), 495; https://doi.org/10.3390/jrfm14100495 - 15 Oct 2021
Cited by 2 | Viewed by 2492
Abstract
The coronavirus crisis that started in December 2019 was declared a pandemic by March 2020 and had devastating global consequences. The spread of the virus led to the implementation of different preventive measures prior to the availability of effective vaccines. While many governments [...] Read more.
The coronavirus crisis that started in December 2019 was declared a pandemic by March 2020 and had devastating global consequences. The spread of the virus led to the implementation of different preventive measures prior to the availability of effective vaccines. While many governments implemented lockdowns to counter the pandemic, others did not let the virus halt economic activity. In this paper, we use a Bayesian Vector Autoregressive framework to study the effects of the pandemic on prices, unemployment rates, and interest rates in nine countries that took distinctive approaches in tackling the pandemic, where we introduce lockdowns as shocks to unemployment. Based on impulse response functions, we find that in most countries the unemployment rate rose, interest rates fell or turned negative, and prices fell initially following the implementation of the lockdown measures. However, the massive fiscal and monetary stimulus packages to counteract the effects of the pandemic reversed some of the effects on the variables, suggesting that models with explicit recognition of such effects should be developed. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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21 pages, 4696 KiB  
Article
Does the Money Multiplier Hold in Pacific Island Countries? The Case of Papua New Guinea
by Mark Ofoi and Parmendra Sharma
J. Risk Financial Manag. 2021, 14(9), 449; https://doi.org/10.3390/jrfm14090449 - 20 Sep 2021
Viewed by 2453
Abstract
This is the first study to systematically assess the significance of the standard money multiplier vis-à-vis the bank credit transmission channel in the case of Pacific Island Economies, focusing on Papua New Guinea. The vector autoregressive model comprising six variables—interest rate, inflation rate, [...] Read more.
This is the first study to systematically assess the significance of the standard money multiplier vis-à-vis the bank credit transmission channel in the case of Pacific Island Economies, focusing on Papua New Guinea. The vector autoregressive model comprising six variables—interest rate, inflation rate, loans, deposits, reserve money, and real output—was estimated using quarterly data for the period 1980q1 to 2017q4. We applied the ordinary least squares (OLS) method to estimate the system of vector autoregressions (VARs). The estimation was conducted for the full and sub-sample periods. From the impulse response functions generated, the results suggest that the money multiplier does not hold and that the transmission to bank credit appears weak. It seems that the ability of the Central Bank to make loanable funds available through its conduct of monetary policy may not enhance private sector credit. On the other hand, there appears to be a significant and positive association between bank deposits and credit, suggesting that bank deposits and credit are endogenous and demand driven. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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18 pages, 1268 KiB  
Article
Do Inflation Expectations Matter for Small, Open Economies? Empirical Evidence from the Solomon Islands
by Angeline B. Rohoia and Parmendra Sharma
J. Risk Financial Manag. 2021, 14(9), 448; https://doi.org/10.3390/jrfm14090448 - 17 Sep 2021
Cited by 1 | Viewed by 2371
Abstract
This paper examines the role of inflation expectations in Solomon Islands, a Pacific Island Country, using the Hybrid New Keynesian Phillips Curve model. The study applies the Generalized Method of Moments to estimate the Hybrid New Keynesian Philips Curve model using quarterly time [...] Read more.
This paper examines the role of inflation expectations in Solomon Islands, a Pacific Island Country, using the Hybrid New Keynesian Phillips Curve model. The study applies the Generalized Method of Moments to estimate the Hybrid New Keynesian Philips Curve model using quarterly time series data for the period 2003–2017. The study confirms the existence of a Hybrid New Keynesian Philips Curve for Solomon Islands and finds that both backward-looking and forward-looking processes matter for inflation. Fuel prices and output gap are important indicators of current inflation. The study highlights key areas to further investigate including the weak monetary transmission mechanism and to examine the exchange rate pass through effect onto domestic prices. Studies on the role of inflation expectations in small, open, economies of the Pacific, such as Solomon Islands, is limited. This paper fills this void in literature by using quarterly time-series data to build a Hybrid New Keynesian Philips Curve model for Solomon Islands. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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21 pages, 810 KiB  
Article
Policy and Business Cycle Shocks: A Structural Factor Model Representation of the US Economy
by Mario Forni and Luca Gambetti
J. Risk Financial Manag. 2021, 14(8), 371; https://doi.org/10.3390/jrfm14080371 - 13 Aug 2021
Cited by 3 | Viewed by 2256
Abstract
We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and five. Focusing on the four-shock specification, we [...] Read more.
We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and five. Focusing on the four-shock specification, we identify, using sign restrictions, two policy shocks, monetary and fiscal, and two non-policy shocks, demand and supply. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluctuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Monetary and fiscal policy shocks have sizable effects on output and prices, with no evidence of crowding-out of private aggregate demand components; both monetary and fiscal authorities implement important systematic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian “cleansing” view of recessions. Full article
(This article belongs to the Special Issue Monetary Policy, Inflation and Unemployment Dynamics: Theory and Empirics)
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