IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-22-00840.html
   My bibliography  Save this article

Testing for explosive behavior in relative inflation measures: Implications for monetary policy under uncertainty

Author

Listed:
  • Jamilu Iliyasu

    (Department of Economics, ABU Business School, Ahmadu Bello University, Nigeria)

  • Aliyu R Sanusi

    (Department of Economics, ABU Business School, Ahmadu Bello University, Nigeria)

  • Suleiman O Mamman

    (Graduate School of Economics and Management, Ural Federal University, Russia)

Abstract

This study sets out to examine the explosive behaviour of relative inflation measures and its effects on consumers' inflation expectation as well as on the efficacy of monetary policy under uncertainty. To achieve these objectives, we applied the Generalised Sup Augmented Dickey-Fuller (GSADF) test to Nigeria's data on aggregate consumer price index (CPI) and its energy, food & “core” components over the period 1995-2020. In the case of energy price, food price and aggregate price, four (4), two (2) and two (2) episodes of explosive behaviours were identified relative to core items. Two of these episodes correspond to the 2016 recession and COVID-19 economic lockdown. It was found that under explosive regimes, inflation expectations were significantly affected, and consumers had become increasingly uncertain about the impact of monetary policy on inflation. One implication of these findings is that because the explosive nature of relative inflation is found to be a determinant of inflation expectation, considering the explosiveness of relative inflation may be an important input to monetary policy decisions. Therefore, we recommend that Central Bank of Nigeria should consider explosiveness in relative inflation measures to determine the best instrument for managing inflation.

Suggested Citation

  • Jamilu Iliyasu & Aliyu R Sanusi & Suleiman O Mamman, 2023. "Testing for explosive behavior in relative inflation measures: Implications for monetary policy under uncertainty," Economics Bulletin, AccessEcon, vol. 43(2), pages 934-947.
    • Handle: RePEc:ebl:ecbull:eb-22-00840
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2023/Volume43/EB-23-V43-I2-P75.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ryan Greenaway-McGrevy & Peter C.B. Phillips, 2016. "Hot property in New Zealand: Empirical evidence of housing bubbles in the metropolitan centres," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(1), pages 88-113, April.
    2. Arora, Vipin & Gomis-Porqueras, Pedro & Shi, Shuping, 2013. "The divergence between core and headline inflation: Implications for consumers’ inflation expectations," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 497-504.
    3. Zheng Liu & Justin Weidner, 2011. "Does headline inflation converge to core?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug1.
    4. Mr. James P Walsh, 2011. "Reconsidering the Role of Food Prices in Inflation," IMF Working Papers 2011/071, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2022. "Gold as a financial instrument," Journal of Commodity Markets, Elsevier, vol. 27(C).
    2. Siami-Namini, Sima & Hudson, Darren & Trindade, A. Alexandre & Lyford, Conrad, 2018. "Commodity Prices, Monetary Policy and the Taylor Rule," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266719, Southern Agricultural Economics Association.
    3. Muhammad Farooq Arby & Amjad Ali, 2017. "Threshold Inflation in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 13, pages 1-19.
    4. Gilles Dufrénot & William Ginn & Marc Pourroy, 2023. "ENSO Climate Patterns on Global Economic Conditions," AMSE Working Papers 2308, Aix-Marseille School of Economics, France.
    5. Bykhovskaya, Anna & Phillips, Peter C.B., 2020. "Point optimal testing with roots that are functionally local to unity," Journal of Econometrics, Elsevier, vol. 219(2), pages 231-259.
    6. Ginn, William & Pourroy, Marc, 2020. "Should a central bank react to food inflation? Evidence from an estimated model for Chile," Economic Modelling, Elsevier, vol. 90(C), pages 221-234.
    7. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik & Javed Iqbal, 2016. "Intrinsic Inflation Persistence in a Developing Country," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 19-42.
    8. Tirthatanmoy Das & Kabir Dasgupta, 2018. "Evaluating the Impact of Mothers' Self-esteem on Early Childhood Home Environment: Evidence from NLSY," Working Papers 2018-03 JEL Classificatio, Auckland University of Technology, Department of Economics, revised Oct 2019.
    9. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    10. Chen, Mei-Ping & Lin, Yu-Hui & Tseng, Chun-Yao & Chen, Wen-Yi, 2015. "Bubbles in health care: Evidence from the U.S., U.K., and German stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 193-205.
    11. Robert G Murphy & Adam Rohde, 2018. "Rational Bias in Inflation Expectations," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(1), pages 153-171, January.
    12. Bill Cochrane & Jacques Poot, 2019. "The Effects of Immigration on Local Housing Markets," Working Papers in Economics 19/07, University of Waikato.
    13. Norman Gemmell & Arthur Grimes & Mark Skidmore, 2019. "Do Local Property Taxes Affect New Building Development? Results from a Quasi-Natural Experiment in New Zealand," The Journal of Real Estate Finance and Economics, Springer, vol. 58(2), pages 310-333, February.
    14. Jean-Louis Bago & Koffi Akakpo & Imad Rherrad & Ernest Ouédraogo, 2021. "Volatility Spillover and International Contagion of Housing Bubbles," JRFM, MDPI, vol. 14(7), pages 1-14, June.
    15. Gheorghe Savoiu, 2015. "A Secular Indicator of the Degree of Economic Development and Synthetic Evaluation of Population Well-Being Trends," Romanian Statistical Review, Romanian Statistical Review, vol. 63(4), pages 3-16, December.
    16. Rangasamy, L. & Nel, E., 2015. "Reconsidering the role of food prices in South African headline inflation," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 53(4), March.
    17. Patnaik, Ila & Pandey, Radhika, 2020. "Moving to Inflation Targeting," Working Papers 20/316, National Institute of Public Finance and Policy.
    18. Jose Eduardo Gomez-Gonzalez & Juliana Gamboa-Arbeláez & Jorge Hirs-Garzón & Andrés Pinchao-Rosero, 2018. "When Bubble Meets Bubble: Contagion in OECD Countries," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 546-566, May.
    19. Joao Ribeiro, 2019. "Inflación de alimentos en Perú: El rol de la política monetaria," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 34(2), pages 81-98, October.
    20. South African Reserve Bank, 2018. "Occasional Bulletin of Economic Notes 2018/01," Working Papers 8281, South African Reserve Bank.

    More about this item

    Keywords

    Inflation; Expectations; Uncertainty; COVID-19; Monetary Policy; Central Bank; GSADF;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-22-00840. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.