• Title, Summary, Keyword: Expected Inflation

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Analyzing Expected Inflation Based on a Term Structure Model: A Case of Korea (이자율모형을 이용한 우리나라 기대인플레이션의 추정 및 특징)

  • Song, Joonhyuk
    • KDI Journal of Economic Policy
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    • v.36 no.2
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    • pp.65-101
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    • 2014
  • This paper estimates and characterizes expected inflations using an affine term structure model based on the empirical stochastic process of the interest rates in Korea. The empirical results show that the expected inflation which marked above 4% before the global financial crisis has dampened and stabilized after the crisis. Moreover, we investigate the rationality of the various expected inflation measures in terms of the unbiasedness and efficiency and find that unbiasedness is not rejected across the all measures, while the efficiency cannot be empirically warranted. Besides, we run Granger causality tests and conclude that the expected inflations compiled from the Consensus, BOK-Expert have the cross-causality with the long-run actual inflation, while the expected inflation estimated from the term structure model has the cross-causality with the short-run actual inflation. These results connote that expected inflations collected from different sources and methods have their targets and horizons and the central bank needs to watch all of them with a balanced view instead of preferring one to the other.

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Measures of Underlying Inflation and Evaluation of Inflation Targeting with Global Crisis in Korea (글로벌 금융위기와 물가안정목표제 평가: 근원인플레이션을 중심으로)

  • Park, Won-Am
    • KDI Journal of Economic Policy
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    • v.32 no.3
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    • pp.1-32
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    • 2010
  • The global financial crisis has exerted enormous impacts on the attainment of inflation target in Korea. The annual average CPI inflation was 3.3% during the targeting period of 2007-2009 and the target was $3.0{\pm}0.5%$. Thus Korea has succeeded in keeping annual average CPI inflation just below the upper limit of the 2007-2009 target under the global crisis. This paper intends to evaluate the performance of the inflation targeting system in Korea. First, it estimates the conventional call rate reaction equation under the global crisis and finds that the policy interest rates never reacted to expected inflation, output gap, and won/dollar exchange rate, as expected by theory. Second, it identifies the shock of global financial crisis into core and non-core, applying the structural VAR model. The core shock was defined to have no (medium- to) long-run impact on real output. The core shock was identified to have the character of the demand shock, since it has the positive impact on the inflation and output in the short run. The structural core inflation due to core shock was an attractor of headline inflation, not vice versa. Therefore, the structural core inflation that reflects the demand-side shock would be the better intermediate target for the final headline inflation target than the official core inflation that excludes the volatile inflation of agricultural and oil-related products. During the inflation targeting period of 2007-2009, the structural core inflation was more volatile than the official core inflation, because the global crisis has very large negative impacts on the domestic demand as well as the prices of agricultural and oil-related products. This paper shows that the negative core shock during the fourth quarter of 2008 was larger than that in the financial crisis in 1998. But the core shock turned into positive very quickly in 2009, as the Korean economy recovered very quickly from crisis. The volatile changes in structural core inflation suggests that the Bank of Korea barely managed to attain the 2007-2009 inflation target, owing to the very large negative impacts of the global financial crisis on the domestic demand. It also suggests that the rapid rise in core inflation with the rapid recovery of the Korean economy will lead to rapid rise in headline inflation.

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Optimal Asset Allocation with Minimum Performance and Inflation Risk (최소 자산제약 및 인플레이션을 고려한 자산 할당에 관한 연구)

  • Lim, Byung Hwa
    • Korean Management Science Review
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    • v.30 no.1
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    • pp.167-181
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    • 2013
  • We investigate the dynamic asset allocation problem under inflation risk when the wealth of an investor is constrained with minimum requirements. To capture the investor's risk preference, the CRRA utility function is considered and he maximizes his expected utility at predetermined date of the refund by participation in the financial market. The financial market is supposed to consist of three kinds of financial instruments which are a risk free asset, a risky asset, and an index bond. The role of an index bond is managing inflation risk represented by price process. The optimal wealth and the optimal asset allocation are derived explicitly by using the method to get the European call option pricing formula. From the numerical results, it is confirmed that the investments on index bond is high when the investor's wealth level is low. However, as his wealth increases, the investments on index bond decreases and he invests on risky asset more. Furthermore, the minimum wealth constraint induces lower investment on risky asset but the effect of the constraints is reduced as the wealth level increases.

Effects of Distribution of Axle Load and Inflation Pressure of Tires on Fuel Efficiency of Tractor Operations (차축의 중량 분포와 타이어의 공기압이 트랙터 작업의 연료 효율에 미치는 영향)

  • Lee, Jin-Woong;Kim, Kyeong-Uk;Gim, Dong-Hyeon;Choi, Kyu-Jeong
    • Journal of Biosystems Engineering
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    • v.36 no.5
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    • pp.303-313
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    • 2011
  • This study was conducted to investigate the effects of axle weight distribution and inflation pressure of tire on the fuel economy of tractors as well as operational range of tractor engine in terms of engine speed and power when a 4WD tractor of 38.2 kW rated power at 2500 rpm is used for plowing and flooded-field rotavating in paddy fields. (1) Plowing operation required an average engine power of 9.6~13.5 kW which equals 25~35% of rated PTO power. Engine speed ranged from 1,320.4 to 1,737.4 rpm, work velocity from 3.4 to 4.8 km/h, and fuel consumption from 3.2 to 4.2 L/h, respectively. (2) Flooded-field rotavating required an average engine power of 11.5~18.5 kW which equals 30~48.4% of rated PTO power. Out of this 6.2~12.2 kW was used for PTO power. Engine speed ranged from 1,557 to 2,067 rpm, work velocity from 2.5~5.4 km/h and fuel consumption from 3.2~5.5 L/h, respectively. (3) Axle weight distribution, inflation pressure of tire and moisture content of soil did not affect significantly the specific volumetric fuel consumption but affected significantly the fuel consumption per unit area of operation. Fuel savings amounted to 65% in plowing operation and 20% in flooded-field rotavating when the axle weight distribution and inflation pressure of tire were optimally adjusted. (4) Optimal adjustment of axle weight distribution and inflation pressure of tire are expected to save fuel consumption by 10~65% per unit area of operation in plowing and 10~20% in flooded-field rotavating.

A Study of Characteristics of Expectation in Inflation Dynamics (물가동학에서 기대변수의 특성에 대한 연구)

  • Lee, Jaejoon
    • KDI Journal of Economic Policy
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    • v.36 no.3
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    • pp.95-120
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    • 2014
  • This paper attempts to demonstrate the critical role of expectation horizons in economic agents building their expectations for the future. It starts with the analysis of what constraints the economics-based assumption related to information efficiency could impose in the stochastic process, and then suggests a new concept, random revision of expectation, to refer to the case when the adjustment process of expected variables employs newly generated information only. According to the inflation dynamics formula drawn under this condition, the demand pressure measured by output gap is found to cause different impacts on inflation according to different expectation horizons. The empirical analysis of this model using the data on Korea reveals that a short expectation horizon causes coefficient estimates to become small and statistically less significant.

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M2 Velocity and Expected Inflation in Korea: Implications for Interest Rate Policy (인플레와 M2 유통속도(流通速度))

  • Park, Woo-kyu
    • KDI Journal of Economic Policy
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    • v.13 no.2
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    • pp.3-19
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    • 1991
  • This paper attempts to identify key determinants of long run movements of real M2 by using the Johansen procedure for estimating and testing cointegration relations. It turns out that the real M2 equation has been stable over the long run despite rapid changes in financial structure since 1975. Moreover, the real M2 equation can be reduced to a velocity equation with the opportunity cost variable, expected inflation less the weighted average rate paid on M2 deposits, being the key determinant. However, it does not work to use a market interest rate such as the yield on corporate bonds in place of expected inflation for calculation of the opportunity cost. In the U.S., a market interest rate can be used, but not in Korea. Presumably, two somewhat different reasonings can be used to explain this result. One is that the yield on corporate bonds may not adequately reflect the inflationary expectations due to regulations on movements in interest rates. The other is that M2 deposits are not readily substitutable with such assets as corporate bonds because of market segmentations, regulations, and so on. From the policymaker's point of view, this implies that the inflation rate is an important indicator of a policy response. On the other hand, policymakers do not regard movements of the yield on corporate bonds as an important policy indicator. Altogether, the role of interest rates has been quite limited in Korea because of incomplete interest rate liberalization, an underdeveloped financial system, implementation procedures of policy measures, and so on. The result that M2 velocity has a positive cointegration relation with expected inflation minus the average rate on M2 implies that frequent adjustments of the regulated rates on M2 will be necessary as market conditions change. As the expected inflation gets higher, M2 velocity will eventually increase, given that the rates on M2 do not change. This will cause higher inflation. If interest rates are liberalized, then increases in market interest rates will result in lagged increases in deposits rates on M2. However, in Korea a substantial portion of deposit rates are regulated and will not change without the authority's initiatives. A tight monetary policy will cause increases in a few market interest rates. But the market mechanism, upward pressure for interest rate adjustments, never reaches regulated deposit rates. Hence the overall effects of tight monetary policy diminish considerably, only causing distortions in the flow of funds. Therefore, frequent adjustments of deposit rates are necessary as market conditions such as inflationary expectations change. Then it becomes important for the policymaker to actively engage in adjusting regulated deposit rates, because the financial sector in Korea is not fully developed.

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Is Currency Appreciation or Depreciation Expansionary in Thailand?

  • Hsing, Yu
    • The Journal of Asian Finance, Economics, and Business
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    • v.5 no.1
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    • pp.5-9
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    • 2018
  • Many developing countries have attempted to depreciate their currencies in order to make their products cheaper, stimulate exports, shift aggregate demand to the right, and increase aggregate output. However, currency depreciation tends to increase import prices, raise domestic inflation, reduce capital inflows, and shift aggregate supply to the left. The net impact is unclear. The paper incorporates the monetary policy function in the model, which is determined by the inflation gap, the output gap, the real effective exchange rate, and the world real interest rate. Applying an extended IS-MP-AS model (Romer, 2000), the paper finds that real depreciation raised real GDP during 1997.Q1-2005.Q3 whereas real appreciation increased real GDP during 2005.Q4-2017.Q2. In addition, a higher government debt-to-GDP ratio, a lower U.S. real federal funds rate, a higher real stock price, a lower real oil price or a lower expected inflation rate would help increase real GDP. Hence, real depreciation or real appreciation may increase or reduce aggregate output, depending upon the level of economic development. Although expansionary fiscal policy is effective in stimulating the economy, caution needs to be exercised as there may be a debt threshold beyond which a further increase in the debt-to-GDO ratio would hurt economic growth.

Impacts of the Real Effective Exchange Rate and the Government Deficit on Aggregate Output in Australia

  • Hsing, Yu
    • The Journal of Asian Finance, Economics, and Business
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    • v.4 no.1
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    • pp.19-23
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    • 2017
  • Based on a simultaneous-equation model consisting of aggregate demand and short-run aggregate supply, this paper estimates a reduced-form equation specifying that the equilibrium real GDP is a function of the real effective exchange rate, the government deficit as a percent of GDP, the real interest rate, foreign income, labor productivity, the real oil price, the expected inflation rate, and the interactive and intercept binary variables accounting for a potential change in the slope of the real effective exchange rate and shift in the intercept. Applying the exponential GARCH technique, it finds that aggregate output in Australia has a positive relationship with the real effective exchange rate during 2003.Q3 - 2013.Q2, the government deficit as a percent of GDP, U.S. real GDP, labor productivity and the real oil price and a negative relationship with the real effective exchange rate during 2013.Q3 - 2016.Q1, the real lending rate and the expected inflation rate. These results suggest that real appreciation was expansionary before 2013.Q3 whereas real depreciation was expansionary after 2013.Q2 and that more government deficit as a percent of GDP would be helpful to stimulate the economy. Hence, the impact of real appreciation or real depreciation on real GDP may change overtime.

Estimation and Variance Estimation for the U.S. Consumer Expenditures Surveys Redesign Research

  • Kim, Jong-Ik
    • Journal of the Korean Statistical Society
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    • v.12 no.1
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    • pp.36-45
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    • 1983
  • After every decennial census in the U.S., national surveys such as the Consumer Expenditures surveys are redesigned. The redesigned samples will be multi-stage systematic samples. Many sampling schemes have been proposed for comparison which requires the estimation and variance estiamtion formula. This paper deals with the surveys redesign research which concerns the sample design within the Primary Sampling Unit (PSU). In constructing the estimators it deals with the problem of which first stage inflation factor to use. The expected value of the proposed estimators is also derived.

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What is the proper way to apply the multiple comparison test?

  • Lee, Sangseok;Lee, Dong Kyu
    • Korean Journal of Anesthesiology
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    • v.71 no.5
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    • pp.353-360
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    • 2018
  • Multiple comparisons tests (MCTs) are performed several times on the mean of experimental conditions. When the null hypothesis is rejected in a validation, MCTs are performed when certain experimental conditions have a statistically significant mean difference or there is a specific aspect between the group means. A problem occurs if the error rate increases while multiple hypothesis tests are performed simultaneously. Consequently, in an MCT, it is necessary to control the error rate to an appropriate level. In this paper, we discuss how to test multiple hypotheses simultaneously while limiting type I error rate, which is caused by ${\alpha}$ inflation. To choose the appropriate test, we must maintain the balance between statistical power and type I error rate. If the test is too conservative, a type I error is not likely to occur. However, concurrently, the test may have insufficient power resulted in increased probability of type II error occurrence. Most researchers may hope to find the best way of adjusting the type I error rate to discriminate the real differences between observed data without wasting too much statistical power. It is expected that this paper will help researchers understand the differences between MCTs and apply them appropriately.