Showing papers by "Johannes Fedderke published in 2018"

Inflation in South Africa: An Assessment of Alternative Inflation Models

Abstract: We consider the relative empirical performance of a range of inflation models for South Africa. Model coverage is of Phillips curve, New Keynesian Phillips curve, monetarist and structural models of inflation. Our core findings are that the single most robust covariate of inflation is unit labour cost. We further decompose unit labour cost into changes in the nominal wage and real labour productivity. The principal association is a strong positive relationship between inflation and nominal wages, while improvements in real labour productivity report only a relatively weak negative association with inflation. Supply‐side shocks also consistently report an association with inflation. As to demand‐side shocks, the output gap does not return a robust statistical association with inflation. Instead, it is growth in the money supply and government expenditure which return robust and theoretically consistent associations with inflationary pressure.

Diagnosing the Source of Financial Market Shocks: An Application to the Asian, Subprime and European Financial Crises

Abstract: This paper presents a test diagnostic that determines whether financial shocks are due to the propagation of idiosyncratic shocks originating in a single source country (or group of countries), or a reflection of market interdependence due to factors common across markets The test is given by the ratio, λ, of the unconditional to the conditional correlation coefficient between markets We demonstrate analytically that the test statistic is robust to heteroscedasticity due to conditional market volatility, to the impact of omitted variables (particularly important in the event that shocks may be transmitted between any two markets via a third ‘intermediate’ market) and to the impact of endogeneity between markets Size and power characteristics of the test are strong An application to the Asian financial crisis of 1997–1998, the subprime crisis of 2007 and the European crisis of 2009 demonstrates its empirical tractability For the Asian and the subprime crises, the λ‐test suggests that propagation of shocks was predominantly due to common fundamentals: in the European crisis shock propagation by contrast is indicated to be due to idiosyncratic shocks centred on Cyprus, Greece and Latvia