Bryce Kanago

High and Uncertain Inflation: Results from a New Data Set

The authors use a data set of inflation expectations that covers twenty years and forty-four countries to investigate the relationship between the level and uncertainty of inflation. While there is strong and robust evidence of a relationship between average inflation and average uncertainty across countries, there is little evidence in their data for a within country relationship. In particular, very few of the countries in the sample exhibit a relationship between lagged inflation and future uncertainty. This result holds even when the authors use a bootstrapping technique that is robust to small sample size and heteroscedasticity.

Contract Duration, Inflation Uncertainty, and the Welfare Effects of Inflation

Abstract Many economists have argued that higher inflation is costly because it produces a more uncertain inflation. This argument is incomplete. The relevant measure of inflation uncertainty is a relative one, and for higher inflation uncertainty to lower welfare requires that inflation uncertainty rise by a sufficient amount. It is possible for higher inflation to cause higher inflation uncertainty, and at the same time welfare could increase. This point is illustrated in a model of contract duration.

Misspecification bias in models of the effect of inflation uncertainty

Abstract In this paper we show that the appropriate measure of inflation uncertainty is relative measure. Specifically, is the standard deviation of inflation relative to the gross expected rate of inflation. Empirical studies of the effects of inflation uncertainty have misspecified their models by not using the relative measure. The bias introduced is equivalent to omitting a relevant variable. We derive the asymptotic bias introduced by this error, and estimate its magnitude for the United States and eight high-inflation countries. Estimates of the effect of inflation uncertainty from high-inflation countries, and cross country studies that include them are likely to suffer from a considerable negative bias. We conclude that future studies should employ this relative measure.

The Emancipation Proclamation, Confederate Expectations, and the Price of Southern Bank Notes

We examine the behavior of a semimonthly series of the Confederate dollar price of bank notes. These notes traded at par with Confederate dollars from October of 1861 until November 5, 1862. We use a model of the demand for two currencies to argue that this departure from par results from altered Southern expectations after the 1862 Congressional elections assured the enactment of the Emancipation Proclamation. Previously, Southerners believed a win or a negotiated settlement would allow a return to the Union intact. When these expectations changed, bank notes appreciated against Confederate dollars. In addition, our empirical work shows that notes appreciated following Northern victories.

The contemporaneous correlation between price shocks and output shocks

Until the 1990s, prices were believed to be procyclical. Several researchers have since presented evidence of counter-cyclical prices. This evidence proved robust, but its interpretation has varied. Some have argued that the contemporaneous correlation between output and prices reflects both the source of the current shock and the adjustment process from short-run to long-run equilibrium; the adjustment to the long run imparts a bias towards a negative price-output correlation. The issue of dynamics is addressed by estimating price shocks and output shocks. The sign of the correlation between these shocks does not reveal anything about the relative importance or frequency of demand versus supply shocks; however, some understanding is gained from the time-series of the product of the shocks. In periods when the product is negative, supply shocks must have been either relatively large or relatively important. In periods when the product is positive, demand shocks must have been either relatively large or relatively important. The data suggest that the economies of the USA, Canada and the UK were buffeted by both demand and supply shocks in about equal portions.