Measuring core inflation in Bangladesh : an unobserved components approach

This paper attempts to construct a core inflation measure for Bangladesh using an Unobserved Components modelling approach. One advantage of the Unobserved Components approach is that this method satisfies some essential statistical criteria for a core inflation measure, which are not guaranteed to be met in other traditional exclusionbased methods. The estimated core inflation series performs well in tracking headline inflation and picking the major turning points in actual inflation. It is also found that there is a negative covariance between the shocks to the core inflation and cyclical inflation, indicating that there may be positive correlation between demand and supply shocks in Bangladesh.

Implied volatility smiles, option mispricing and net buying pressure : evidence around the global financial crisis

Using the recent global financial crisis as an exogenous setting, we examine the presence and source of implied volatility smile phenomena in Australian S&P ASX 200 index options. We find a pronounced implied volatility smile for index puts in both bull and bear markets and a smile for index calls in the bear but not bull market. Implied volatilities of out-of-the money puts tend to be upwards biased whilst those of calls tend to be downwards biased. We also find that the bias in implied volatilities yields excess returns based on unhedged and delta-neutral trading strategies, suggesting that implied volatilities are related to option mispricing. Net buying pressure from market participants appears to be a source of mispricing in the case of out-of-the-money index puts with excess demand particularly pronounced during the bull period before the global financial crisis unfolded.

Inflation dynamics and New Keynesian Phillips Curve in Australia

The New Keynesian Phillips Curve (NKPC) is a standard model in the analysis of inflation dynamics. For the Australian economy, this study establishes the empirical evidence that the NKPC can explain the process of inflation dynamics and the price-setting mechanism. The trade shocks, such as the real exchange rate and the terms of trade, play an important role in inflation dynamics.

Inflation and quality dispersion

One questionable aspect of price posting with directed search is the strong commitment by sellers to commit to the advertised terms of trade. In this paper I explore the welfare implications of assuming that sellers cannot commit and vary the quality of their output ex post according to realized demand. I show that such lack of commitment translates into lower participation by buyers, lower average quality, and a consumption-equivalent loss of 0.3% of annual GDP.

The implied convenience yield of precious metals: safe haven versus industrial usage

During a financial crisis, investors find it convenient to hold gold (Gd) as a safe haven. But during good economic times, manufacturing firms find it convenient to stockpile platinum (Pl), palladium (Pd) and especially silver (Si), for industrial usages. We have three related objectives. First, we examine the nature of cross-market interactions among the convenience yields (cy_it) of {Gd, Pl, Pd, Si}, which are implied from cost-of-carry relations. Second, we test if the more influential cy_it of certain precious metals are also affecting the return, volatility and/or volume dynamics of other precious metals. Third, we analyze if the cy_it of gold is enhanced (diluted) during (after) the Asian and Global financial crises. We find, consistent with our propositions, that during crisis period, gold’s cy_it provides incremental information to the volatility series of {Gd, Pl, Pd, Si}. But during good economic times, it is silver’s cy_it that has the most influence on the return series across {Gd, Pl, Pd, Si}. This is not surprising given that Si has the largest proportion of industrial usage among the four metals.

Three essays on stock returns and inflation - Australian evidence

Results of this thesis suggest that a significant negative relation between stock returns and inflation identified in Australia during ‘inflation targeting’ is mainly due to an incidence of ‘flight to safety’. Furthermore, the impact of inflation news on stock returns is industry-sector dependent. Specifically, in Australia rising inflation seems to be good news for Financials, but bad news for Materials.

Response of inflation to shocks: new evidence from Sub-Saharan African countries

In this paper, we investigate whether or not the inflation rate of 17 Sub-Saharan African countries can be modelled as a stationary process. We achieve this goal through using univariate and panel stationarity tests for data over the period 1966 to 2002. We use the Kwiatkowski, Phillips, Schmidt and Shin (KPSS, 1992) univariate test and allow for multiple structural breaks. We find that except for Burkina Faso, Burundi and Gambia, the inflation rate is stationary for the rest of the 14 countries. We then apply the panel version of the KPSS test, developed by Carrion-i-Silvestre et al. (2005), which accounts for multiple structural breaks. We find strong evidence of panel stationarity of the inflation rate. However, for a panel consisting of Burkina Faso, Burundi and Gambia, we could not find evidence that the inflation rate is stationary. © 2013 Elsevier B.V.