Browsing by Author "Chesang, Laban K."
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Arjoon, Riona; Botes, Mariëtte; Chesang, Laban K.; Gupta, Rangan (Journal of Business Economics and Management, 2012)[more][less]
Abstract: The existing literature on the theoretical relationship between the rate of inflation and real stock prices in an economy has shown varied predictions about the long run effects of inflation on real stock prices. In this paper, we present some time series evidence on this issue using South African data, by applying the structural bivariate vector autoregressive (VAR) methodology proposed by King and Watson (1997). Our empirical results provide considerable support of the view that, in the long run real stock prices are invariant to permanent changes in the rate of inflation. The impulse responses reveal a positive real stock price response to a permanent inflation shock in the long run, indicating that any deviations in short run real stock prices will be corrected towards the long run value. It is therefore concluded that inflation does not lower the real value of stocks in South Africa, at least in the long run. URI: http://repository.daystar.ac.ke/xmlui/handle/123456789/3646 Files in this item: 1
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Chesang, Laban K.; Naraidoo, Ruthira (Economic Modelling, 2016)[more][less]
Abstract: This paper exploits the Lucas’ (1973) signal extraction model to study the effect of uncertainty in the outputinflation trade-off on inflation, using a monetary model with asymmetric central bank preferences over inflation and output. We show that the implication of the uncertainty is two-fold: firstly, it causes the interaction of output and volatility of monetary policy to influence inflation movements so that, higher volatility in monetary policy causes inflation to rise. Secondly, as suggested in an optimal rule, it causes output to contract by less whenever inflation increases above the target, and to expand by less whenever inflation is below the target. We also find that the Reserve Bank’s asymmetric aversion to inflation stabilization explains inflation movements significantly, and that the monetary authority seems to penalize more for inflationary rather than deflationary pressures. Overall, the Bank’s deflationary bias would allow for a relatively flat output-inflation trade-off, which could be helpful for economic stability. URI: http://repository.daystar.ac.ke/xmlui/handle/123456789/3647 Files in this item: 1
Now showing items 1-2 of 2