Upload
derek-shanon-robinson
View
215
Download
0
Tags:
Embed Size (px)
Citation preview
Has EMU had any effect on anchoring of inflation
expectations? Maritta Paloviita and Matti Viren
Bank of Finland and University of Turku
Basic idea
• The basic idea is an attempt to see whether the Phillips curve has shifted due to the EMU (better anchoring of expectations ). So, what we do is to graph the inflation –unemployment observations (see the word file) and compute the so-called misery indices . The second step has been computation of the dispersion of the respective observations for both EMU and Non-EMU countries using two 15-year-periods.
• This measure is based on a simple program that computes the average distance between all sample observations from each other (each observation is used as the origin in one set of computations and an average of all these computations is reported). Moreover, the variables are weighted within the scale of (0,1) so that the distance of inflation values is not necessarily valued in the same way as the distance of the unemployment observations.
• So, has the EMU been a success story? A comparison between the EMU and Non-EMU countries within the OECD countries gives some idea of relative merits of the monetary union.
Morale
• In regime 1 (well-anchored expectations) the misery index changes only slightly because the economy moves along the short-run Phillips curve, by contrast in all other regimes where the Phillips curve moves outwards/inwards the misery index values change a lot (compare e.g. points A and B).
• This is a simple way of assessing the effects of inflation expectations; the analysis is not conditional to any specific form of the Phillips curve and any specific form of inflation expectations.
The data
• The data sample is consists of just two variables • u= the unemployment rate• π = the Inflation rate in terms of the CPI • For the period 1984-1998 & 1999 – 2013 from the OECD data bank
0
1
2
3
4
5
6
2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4
1999
1984Austria
-1
0
1
2
3
4
5
6
7
6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0
1984
1999
Belgium
0
1
2
3
4
5
6
7
8
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
1984
1999
Finland
0
1
2
3
4
5
6
7
8
7.6 8.0 8.4 8.8 9.2 9.6 10.0 10.4 10.8 11.2
France1984
1999
-1
0
1
2
3
4
5
6
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5
Germany
1999
1984
-5
0
5
10
15
20
25
6 8 10 12 14 16 18 20 22 24 26 28
1999
1984
Greece
-6
-4
-2
0
2
4
6
8
10
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
1999
1984
Ireland
0
2
4
6
8
10
12
6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 12.5
1984
1999
Italy
-1
0
1
2
3
4
5
2.4 2.8 3.2 3.6 4.0 4.4 4.8 5.2 5.6 6.0 6.4 6.8 7.2 7.6 8.0 8.4
1984
1999
Netherlands
-5
0
5
10
15
20
25
30
4 5 6 7 8 9 10 11 12 13 14 15 16 17
1984
1999
Portugal
-2
0
2
4
6
8
10
12
8 10 12 14 16 18 20 22 24 26 28
1984
1999
Spain
Inflation unemployment observations for the Euro area countries
0
2
4
6
8
10
4 5 6 7 8 9 10 11
1984
Australia
1999
0
1
2
3
4
5
6
5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5
Canada
1984
1999
0
1
2
3
4
5
6
7
3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0
1984
1999
Denmark
-2
-1
0
1
2
3
4
2.0 2.4 2.8 3.2 3.6 4.0 4.4 4.8 5.2 5.6
1984
1999
Japan
0
1
2
3
4
5
6
7
8
9
1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
1984
1999
Norway
-4
0
4
8
12
16
3 4 5 6 7 8 9 10 11
1984
1999
New Zealand
-2
0
2
4
6
8
10
12
1 2 3 4 5 6 7 8 9 10
1984
1999
Sweden
0
1
2
3
4
5
6
7
8
4 5 6 7 8 9 10 11 12
1984
1999
United Kingdom
-1
0
1
2
3
4
5
6
3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0
1984
1999
United States
Inflation unemployment observations for the other countries
4
5
6
7
8
9
1985 1990 1995 2000 2005 2010
MISERYAT
4
8
12
16
20
1985 1990 1995 2000 2005 2010
MISERYAU
6
8
10
12
14
16
18
1985 1990 1995 2000 2005 2010
MISERYBE
6
8
10
12
14
16
1985 1990 1995 2000 2005 2010
MISERYCA
4
6
8
10
12
14
16
1985 1990 1995 2000 2005 2010
MISERYDE
8
10
12
14
16
18
20
1985 1990 1995 2000 2005 2010
MISERYFI
8
10
12
14
16
18
1985 1990 1995 2000 2005 2010
MISERYFR
6
8
10
12
14
1985 1990 1995 2000 2005 2010
MISERYGE
10
15
20
25
30
1985 1990 1995 2000 2005 2010
MISERYGR
5
10
15
20
25
1985 1990 1995 2000 2005 2010
MISERYIR
4
8
12
16
20
1985 1990 1995 2000 2005 2010
MISERYIT
2.5
3.0
3.5
4.0
4.5
5.0
5.5
1985 1990 1995 2000 2005 2010
MISERYJP
4
6
8
10
12
1985 1990 1995 2000 2005 2010
MISERYNL
2
4
6
8
10
12
1985 1990 1995 2000 2005 2010
MISERYNO
5
10
15
20
1985 1990 1995 2000 2005 2010
MISERYNZ
0
10
20
30
40
1985 1990 1995 2000 2005 2010
MISERYPT
10
15
20
25
30
1985 1990 1995 2000 2005 2010
MISERYSP
6
8
10
12
14
1985 1990 1995 2000 2005 2010
MISERYSW
4
8
12
16
20
1985 1990 1995 2000 2005 2010
MISERYUK
6
8
10
12
14
1985 1990 1995 2000 2005 2010
MISERYUS
The misery index values
0
4
8
12
16
20
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
AllEuroOther
Mean values of misery indices
Average Median Euro area 1984-1998 2.93 2.82Euro area 1984-1998 2.45 1.80Other countries 1999-2013 2.09 1.98Other countries 1999-2013 1.20 1.19
Change of the standard deviation of the Misery index 1984-1998/1999-2013
Euro area Other countries
u -.060(5.17
-.061(2.79)
Euro*u .045(2.42)
.055(1.83)
Coefficient of the Euro dummy , the dependent variable ∆∆P
Estimated from ∆2pt = αut + b*Euro*ut + εt) for period 1984-2013
AT
AU
BE
CA
DE
FI
FR
GE
GR
IR
IT
JP
NL
NO
NZ
PT
SP
SW
UK
US
-0.3 -0.25 -0.2 -0.15 -0.1 -0.05 0
Slopes of individual Phillips curves (estimated from ∆2pt = αut + εt) for period 1984-2013.
How to compute the measure of the dispersion of inflation – unemployment rate observations ?
• Choice of weights for inflation and unemployment • Equal weights • Convex combination of weights from {0,1} interval • The numbers are distance measures; how far are the {unemployment,
inflation} data points from each other
Formula for computing the distanceJust use the Pythagoras theorem • Compute distance between all inflation – unemployment rate
combinations
dp
u
weight 0.5/0.5 gives equal weights for inflation and unemplyment rate
Euro Austria Belgium Finland France Germany Greece Ireland Italy Holland Portugal Spain
1984-1998 1,646 2,440 6,682 2,481 2,395 6,866 3,966 3,030 1,984 8,137 4,172
1999-2013 1,196 1,562 1,997 1,345 2,373 6,046 6,013 2,236 1,726 4,819 6,927
Other Australia Canada Denmark JapanNew Zealand Norway Sweden UK USA
1984-1998 4,078 2,774 2,594 1,504 6,523 3,301 5,852 3,258 1,849
1999-2013 1,591 1,213 1,958 0,986 2,065 1,406 1,908 2,021 2,649
Summary of the results for the 0.5/0.5 case
Austria France Belgium Netherlands Finland Italy Germany Portugal Ireland Greece Spain0.000
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
1984-19981999-2013
Change of dispersion in the Euro area countries, 0.5/0.5
Japan Canada Norway Australia Sweden Denmark UK New Zealand USA0.000
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
1984-19981999-2013
Change of dispersion outside the Euro area, 0.5/0.5
Average and median (inside parentheses) changes of dispersion in 1984-1998 vs 1999-2013
Equal 0.5 weights
All weights between 0 and 1
Euro area 0,687(0.794)
0,678(0.547)
Outside Euro 1,770
(1.560)1.712
(1.433)
0,000
0,500
1,000
1,500
2,000
2,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Austria
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Belgium
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Germany
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
France
1984-1998
1999-2013
0,0001,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Greece
1984-1998
1999-2013
0,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Finland
1984-1998
1999-2013
0,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Ireland
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Italy
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Netherlands
1984-1998
1999-2013
0,000
2,000
4,000
6,000
8,000
10,000
12,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Portugal
1984-1998
1999-2013
0,0001,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axi
s Ti
tle
Spain
1984-1998
1999-2013
Dispersion with different values of the weight parameter; Euro countries
0,000
1,000
2,000
3,000
4,000
5,000
6,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Australia
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Canada
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Denmark
1984-1998
1999-2013
0,000
0,200
0,400
0,600
0,800
1,000
1,200
1,400
1,600
1,800
2,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Japan
1984-1998
1999-2013
0,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
New Zealand
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Norway
1984-1998
1999-2013
0,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
Sweden
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
UK
1984-1998
1999-2013
0,000
0,500
1,000
1,500
2,000
2,500
3,000
3,500
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Axis
Title
USA
1984-1998
1999-2013
Dispersion with different values of the weight parameter; other countries
Conclusions
• Dispersion of inflation and unemployment combinations in the Euro area has decreased indicating better anchoring but it has decreased less than outside the Euro area
• Hence, in this respect the ECB has not outperformed other central banks
Misery index references
• http://mpra.ub.uni-muenchen.de/37493/1/MPRA_paper_37493.pdfhttp://www.cato.org/publications/commentary/measuring-misery-around-world
• http://www.cato.org/publications/commentary/measuring-misery-around-world
•http://www.businessweek.com/stories/1999-02-21/reagan-vs-dot-clinton-whos-the-economic-champ
• http://www.ucema.edu.ar/publicaciones/download/volume10/welsch.pdf