Economics and Information Theory

This paper proposes a new core inflation indicator for the euro area, obtained by 'cleaning' monthly price changes from short-run volatility, idiosyncratic, and measurement errors. We use a factor model to "project" monthly inflation on a large panel of time series. Exploiting multivariate information we obtain a satisfactory degree of smoothing without using backward looking moving averages, which induce a time delay in the signal. The indicator forecasts inflation and is a useful tool for policy makers. It outperforms other commonly used predictors at 6 months and longer horizons. It tracks past policy interventions of the ECB.

A core inflation indicator for the Euro area

The Nonparametric Approach to Demand Analysis

OPEC and non-OPEC production, global demand, and the financialization of oil

Since ChinaA­s enactment of the Reform and Opening-Up policy in 1978, China has become one of the worldA­s fastest growing economies, with an annual GDP growth rate exceeding 10% between 1978 and 2008. But in 2015, Chinese GDP grew at 7 %, the lowest rate in five years. Many corporations complain that the borrowing cost of capital is too high. This paper constructs Chinese Divisia monetary aggregates M1 and M2, and, for the first time, constructs the broader Chinese monetary aggregates, M3 and M4. Those broader aggregates have never before been constructed for China, either as simple-sum or Divisia. The results shed light on the current Chinese monetary situation and the increased borrowing cost of money. GDP data are published only quarterly and with a substantial lag, while many monetary and financial decisions are made at a higher frequency. GDP nowcasting can evaluate the current monthA­s GDP growth rate, given the available economic data up to the point at which the nowcasting is conducted. Therefore, nowcasting GDP has become an increasingly important task for central banks. This paper nowcasts Chinese monthly GDP growth rate using a dynamic factor model, incorporating as indicators the Divisia monetary aggregate indexes, Divisia M1 and M2 along with additional information from a large panel of other relevant time series data. The results show that Divisia monetary aggregates contain more indicator information than the simple sum aggregates, and thereby help the factor model produce the best available nowcasting results. In addition, our results demonstrate that ChinaA­s economy experienced a regime switch or structure break in 2012, which a Chow test confirmed the regime switch. Before and after the regime switch, the factor models performed differently. We conclude that different nowcasting models should be used during the two regimes.

Chinese Divisia monetary index and GDP nowcasting

This paper builds monthly time-series of Divisia monetary aggregates for the Gulf area for the period of June 2004 to December 2011, using area-wide data. We also offer an "economic stability" indicator for the GCC area by analyzing the dynamics pertaining to certain variables such as the dual price aggregates, aggregate interest rates, and the Divisia aggregate user cost growth rates. Our findings unfold the superiority of the Divisia indexes over the officially published simple-sum monetary aggregates in monitoring the business cycles. There is also direct evidence on higher economic harmonization between GCC countries-- especially in terms of their financial markets and the monetary policy. Monetary policy often uses interest rate rules, when the economy is subject only to technology shocks. In that case, money is nevertheless relevant as an endogenous indicator (Woodford, 2003). Properly weighted monetary aggregates provide critical information to policy makers regarding inside liquidity created by financial intermediaries. In addition, policy rules should include money as well as interest rates, when the economy is subject to monetary shocks as well as technology shocks. The data show narrow aggregates growing while broad aggregates collapsed following the financial crises. This information clearly signals problems with the financial system's ability to create liquidity during the crises.

Divisia monetary aggregates for the GCC countries

This paper compares the “simplesum” monetary aggregates - M2) (M1 andpublished by the Saudi Arabian Monetary Agency (SAMA) with the new monetary aggregates (D1 andD2)—known as the Divisia monetary indexes. The former aggregates are constructed from a simple accounting identity, whereas the Divisia aggregates are constructed using statistical index number theory and aggregation theory. The findings suggest that both D1 and M1 are identical, given the perfect substitutab ility of the monetary components within those aggregates. For the broader monetary aggregates where perfect substitutability assumption is not realistic, the two monetary indexes differ substantially. SAMA could benefit by using both monetary indexes simultaneously to better monitor liquidity in the market. Keywords: monetary aggregation; Divisia monetary aggregates; index number theory JEL Classifications: E41; E51; E52; E58 1. Introduction Simple-sum monetary aggregates (widely denoted by M1, M2, and M3) are commonly used by central banks worldwide. Those monetary indexes are derived from a simple accounting identity. The implicit assumption made when using simple -sum monetary aggregates is that all components are perfect

https://www.mdpi.com/2227-7072/3/1/49/pdf

Modern and Traditional Methods for Measuring Money Supply: The Case of Saudi Arabia

Summary: This paper constructs and analyzes core inflation indicators for Saudi Arabia for the period of March 2012 to May 2014 using two alternative approaches: the exclusion method (ex food and housing/rent) and the statistical method. The findings of the analysis suggest that the ex food and housing/rent inflation is more volatile than the overall CPI inflation over the sample period. In contrast, the statistical core inflation is relatively more stable and less volatile. Moreover, the ex food and housing/rent inflation is only weakly correlated with headline inflation, whereas the statistical core inflation exhibits a stronger correlation. This combination of lower volatility and higher correlation with headline inflation makes the statistical method a much better choice for policymakers. From a monetary policy standpoint, using a bundle of core inflation measures, including both properly constructed exclusion and statistical methods, is more desirable, especially when variation across measures is widespread, as is the case in Saudi Arabia.

/pdf/core-inflation-indicators-for-saudi-arabia-153dgaln14.pdf

Core Inflation Indicators for Saudi Arabia

There are three major objectives of this paper: first, to examine the various exchange rate regimes and arrangements that have emerged over the last 40 years since the collapse of the Bretton Woods Agreement, focusing on the advantages and disadvantages of each, particularly as they relate to inflation and real economic growth, second, to analyze the historical relationship between the Kingdom’s various exchange rate regimes and the performance of its non-oil private sector, and third, to compare Saudi Arabia’s economic performance since 1986 (when the riyal was firmly pegged to the US dollar) with a number of other developed and developing countries that have followed different exchange rate arrangements. The findings of this paper confirm that the dollar peg has served Saudi Arabia well.

/pdf/has-the-dollar-peg-served-the-saudi-economy-well-2qjojv5jjp.pdf

Has the Dollar Peg Served the Saudi Economy Well

This chapter builds monthly time-series of Divisia monetary aggregates for the Gulf area for the period of June 2004 to December 2011, using area-wide data. We also offer an “economic stability” indicator for the Gulf Cooperation Council (GCC) area by analyzing the dynamics pertaining to certain variables such as the dual price aggregates, aggregate interest rates, and the Divisia aggregate user-cost growth rates. Our findings unfold the superiority of the Divisia indexes over the officially published simple-sum monetary aggregates in monitoring the business cycles. There is also direct evidence on higher economic harmonization between GCC countries – especially in terms of their financial markets and the monetary policy. Monetary policy often uses interest rate rules, when the economy is subject only to technology shocks. In that case, money is nevertheless relevant as an endogenous indicator (Woodford, M. (2003). Interest and prices: Foundations of a theory of monetary policy. Princeton, NJ: Princeton University Press.). Properly weighted monetary aggregates provide critical information to policy-makers regarding inside liquidity created by financial intermediaries. In addition, policy rules should include money as well as interest rates, when the economy is subject to monetary shocks as well as technology shocks. The data show narrow aggregates growing while broad aggregates collapsed following the financial crises. This information clearly signals problems with the financial system's ability to create liquidity during the crises.

/pdf/divisia-monetary-aggregates-for-the-gcc-countries-7jfcf2dq1o.pdf

Ryadh M. Alkhareif

Papers

Divisia monetary aggregates for the GCC countries

Modern and Traditional Methods for Measuring Money Supply: The Case of Saudi Arabia

Core Inflation Indicators for Saudi Arabia

Has the Dollar Peg Served the Saudi Economy Well

Divisia monetary aggregates for the GCC countries