Inflation and economic activity in advanced and emerging economies

Serletis, Apostolos; Liu, Jinan

doi:10.1002/ijfe.2367

Cited by 6 publications

(6 citation statements)

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“…ψ^22 is negative and statistically significant for China, India and Russia, while ψ^22 is not statistically significant for Indonesia, Mexico and Turkey. The considerable degree of heterogeneity regarding the effect of inflation uncertainty on inflation across countries is generally consistent with Caporale and Kontonikas (2009), Albulescu et al (2019), Hou (2019), Serletis and Liu (2020), and Barnett et al (2020). All these studies find that the relationship between inflation and inflation uncertainty substantially varies over time and frequency.…”

Section: Empirical Evidencesupporting

confidence: 69%

“…We use a VARMA, GARCH-in-mean, asymmetric BEKK model to examine the effects of inflation and inflation uncertainty on equity returns. The model is [for more details, see Engle and Kroner (1995), Grier et al (2004), Rahman and Serletis (2012), and Liu and Serletis (2020)]where 0 is the null vector, normalΩt−1 denotes the available information set in period t−1, and…”

Section: The Garch-in-mean Asymmetric Bekk Modelmentioning

confidence: 99%

“…Buono (1989) argues that the negative correlation between inflation uncertainty and stock returns could be caused by the combination of a positive relationship between the rate of inflation and the variability of inflation and a negative relationship between the variability of inflation and stock returns. Although the empirical evidence on the effect of inflation uncertainty on inflation is mixed – see, for example, Serletis and Liu (2020) – it is generally agreed that understanding the relationship between inflation uncertainty and inflation is important in explaining the relationship between inflation and equity returns.…”

Section: Empirical Evidencementioning

confidence: 99%

“…The complexity of the financial systems and institutions across the G7 and EM7 countries may contribute to the differences in the effects of inflation uncertainty on inflation. As summarized in Serletis and Liu (2020), the relationship between inflation uncertainty and inflation also involves the response of monetary policy to inflation. Holland (1993b) argues that the effects of monetary policy take time to work their way through the banking system to the real economy and eventually to inflation.…”

Section: Empirical Evidencementioning

confidence: 99%

“…Finally, the diverse monetary policy mandates across the G7 and EM7 countries can lead to various time horizons to achieve the monetary policy goals. In this regard, Serletis and Liu (2020) find mixed evidence of the inflation and inflation uncertainty effects on output growth after systematically investigating the G7 and EM7 economies.…”

Section: Introductionmentioning

confidence: 99%

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The complex relationship between inflation and equity returns

Liu

Serletis

2021

JES

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PurposeTo investigate the complex relationship between inflation, inflation uncertainty and equity returns.Design/methodology/approachThis paper uses a bivariate VARMA, GARCH-in-mean, asymmetric BEKK model to investigate the relationship between inflation, inflation uncertainty and equity returns.FindingsUsing monthly inflation and equity returns data for the G7 and EM7 economies, we find that the effects of inflation and inflation uncertainty on equity returns vary across countries.Research limitations/implicationsThe mixed evidence we find potentially reflects the changing dynamics, policy regimes, economic shocks and country-specific factors (such as differences in the financing patterns of enterprises and the legal and financial environments) across the G7 and EM7 countries.Practical implicationsWe contribute to the empirical literature in the following ways. First, we rely on a wide sample of countries, including both developed and emerging economies. Second, we extend previous research by estimating a GARCH-in-mean model of monthly equity returns in which both realized returns and their conditional volatility are allowed to vary with inflation. Previous articles that studied the relationship between inflation and stock market returns generally sought time-invariant effects of inflation on stock returns.Social implicationsThe paper helps to reconcile the divergent results of previous empirical studies and distinguish between alternative explanations of the relationship between inflation and equity returns.Originality/valueOur study provides an improved comprehension of the ambiguous relationship between inflation, inflation uncertainty and equity returns under various central bank mandates and different levels of central bank independence. The mixed empirical evidence across countries we present provides insights for the macroeconomic models that consider the relationship between uncertainty and macroeconomic performance as a fundamental building block. Therefore, our empirical study calls for further work on the relationship between inflation, inflation uncertainty and equity returns.

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Section: Empirical Evidencesupporting

confidence: 69%

Section: The Garch-in-mean Asymmetric Bekk Modelmentioning

confidence: 99%

Section: Empirical Evidencementioning

confidence: 99%

Section: Empirical Evidencementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The complex relationship between inflation and equity returns

Liu

Serletis

2021

JES

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World Commodity Prices and Economic Activity in Advanced and Emerging Economies

Liu

Serletis

2021

Open Econ Rev

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We investigate the volatility dynamics of commodity price and the dependence structure between commodity prices and output growth in the G7 and EM7 economies using a semiparametric GARCH-in-Mean copula approach. We show that for the G7 economies, a symmetric weak tail dependence exists between commodity prices and outputs in France, Germany, and Japan. For the EM7 economies, a lower tail dependence is observed between commodity prices and output growth in Brazil, and a symmetric weak tail dependence is observed in Indonesia. No statistically significant tail dependence between commodity prices and output growth is found for the rest of the G7 and EM7 economies.

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