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When is Lower Inflation less Stable? Evidence from Eight Developing Economies

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  • Karras, Georgios

    (University of Illinois at Chicago, Chicago, Illinois, USA)

Abstract

This paper investigates the relationship between inflation and inflation volatility in eight developing economies. Using monthly data for Chile, China, India, Indonesia, Korea, Poland, South Africa, and Turkey, the results show that inflation and its volatility have been positively correlated when inflation exceeds a certain value, but negatively correlated when inflation is below this threshold. The evidence also suggests that inflation volatility is minimized at inflation rates that differ across the countries, ranging from roughly 3% in South Africa to 12% in Turkey, a range which includes both the 3.5% break point predicted by the New Keynesian model of Coibion et al. (2012) and the 4% inflation target recommended by Ball (2013) and Krugman (2013), but not the (formal or informal) 2% inflation target of many central banks. Quando l’inflazione più bassa è meno stabile? Evidenze da otto economie in via di sviluppo Questo lavoro studia la relazione tra livello di inflazione e volatilità dell’inflazione stessa in otto economie in via di sviluppo. Utilizzando dati mensili per Cile, Cina, India, Indonesia, Corea, Polonia, Sud Africa e Turchia, i risultati dimostrano che l’inflazione e la sua volatilità sono state positivamente correlate quando l’inflazione eccede un certo valore, ma negativamente correlate quando l’inflazione è sotto questa soglia. Inoltre vi sono evidenze che la volatilità dell’inflazione è minima a tassi di inflazione differenti da paese a paese: all’incirca il 3% in Sud Africa, il 12% in Turchia, cioè una gamma che include sia il break point del 3.5% previsto dal nuovo modello Keynesiano di Coibion et al. (2012) che il 4% raccomandato da Ball (2013) e Krugman (2013), ma non il 2%, obbiettivo (formale o informale) di inflazione di molte banche centrali.

Suggested Citation

  • Karras, Georgios, 2017. "When is Lower Inflation less Stable? Evidence from Eight Developing Economies," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(3), pages 333-352.
    • Handle: RePEc:ris:ecoint:0807
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; Inflation Volatility; Trend Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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