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I. INTRODUCTION In this paper, we examine the effect of government subsidies on R&D employment using data on a panel of 25 Organisation for Economic Co-operation and Development (OECD) countries [...], Existing evidence suggests that government subsidies stimulate business R&D expenditure. However, most studies fail to address the possibility that part of the observed increase in expenditure may be due to higher R&D wages. We consider the impact of different government subsidies on R&D workers in 25 OECD countries and find that the short run tax-price elasticity of R&D employment is marginally higher than existing estimates of the elasticity of expenditure with respect to the tax price of both labor and capital combined. We conclude that there is no evidence to indicate that wage inflation has seriously conflated past estimates of the effectiveness of government R&D subsidies. Keywords: innovation policy, R&D tax incentives, R&D subsidies, wage inflation JEL Codes: H25, 031, 057

The main purpose of this study is to ascertain the existence (or not) of a relationship between Inflation and economic growth in Nigeria. The methodology employed in this study is the cointegration and Granger causality test. Consumer price index (CPI) was used as a proxy for Inflation and the GDP as a perfect proxy for economic growth to examine the relationship. The scope of the study spanned from 1970 to 2005. A stationarity test was carried out using the Augmented Dickey-Fuller test (ADF) and Phillip-Perron test (PP). and stationarity found at first difference at 1% and 5% level of significance. The Johansen-Juselius co-integration technique employed in this study proved to be superior to the Engle and Granger (1987) approach in assessing the co-integrating properties of variables, especially in a multivariate context. The result of the test showed that for the periods, 1970-2005, there was no co-integrating relationship between Inflation and economic growth for Nigeria data. Further effort was made to check the causality relationship that exists between the two variables by employing the VAR-Granger causality at two different lag periods. The results showed the same at different lags. The first test was conducted using lag two (2) and in the result unidirectional causality was seen running from Inflation to economic growth. Further test at lag four (4) was carried out and it only supported the first by also indicating a unidirectional causality running from Inflation to economic growth. Various studies as reviewed in the literature came out with the result that high inflation is and has never been favourable to economic growth. Hence, the study through the empirical findings maintain the fact that the causality that run from inflation to economic growth is an indication of relationship showing that Inflation indeed has an impact on growth. Keywords: Inflation, Economic growth, Nigeria, Cointegration, Granger causality, 1. Introduction There is a high level consensus among many economists, Central bankers, policy makers and practitioners that one of the fundamental objective of macroeconomic policies in both the developed [...]

Vector autoregression (VAR) analysis is used to study the decrease in volatility of inflation and output growth in the US. Existing VAR evidence favors the theory connecting improved economic policy to the decline in volatility.

The New Keynesian Philips curve's generation of inflation persistence is examined. Inflation persistence is seen to result from variation in the long-run trend component of inflation. Such variation has been attributed to shifts in monetary policy.

Targeting estimates of the indexation parameter under inflation in hybrid New Keynesian Phillips curves are very low. The notion of the structurality of intrinsic inflation persistence is questioned. Mistakes may result from incorporating inflation persistence into macroeconomic models.

A study was conducted to present an overview of the post-1998 Turkish economy. A macroeconomic computable general equilibrium model is developed in order to demonstrate the real and financial sectoral adjustments of the Turkish economy. Findings indicate that the current monetary strategy is effective in bringing inflation down, but it suffers from increased cost of interest burden to the public sector.

A study was conducted to examine the employment costs of inflation reduction in developing countries from a gender perspective. Findings indicate that the ratio of women's to men's employment tends to decline during periods of declining inflation that go with a loss of formal employment.

A study was conducted to describe the Brazilian experience with inflation targeting from 1999 to 2006. Findings show that inflation targeting reduced the real interest rate of the economy. Results also indicate that inflation targeting and exchange-rate appreciation were able to reduce inflation in the country.

A study was conducted to examine class-based preferences towards anti-inflationary and anti-unemployment policy. A consistent cross-country survey is used. Findings indicate that respondents who show a broadly pro-business and anti-redistributionary attitude are more relatively inflation averse.

Housing prices are useful for predicting output growth, while inflation forecasts can be improved by using stock and housing prices. These are relative to the information contained in Phillips-curve indicators for inflation and IS-curve indicators for output growth.

A study is conducted on the history of Ottoman Empire to examine reasons for inflation during the 1586-1913 period.

This paper studies the relation between different formulas for computing aggregate price indices and estimates of inflation persistence. The relevance of 'aggregation bias' for policy making is discussed. We show that 'aggregation bias' may not be a concern for a cautious policy-maker. We also show that chained indices are likely to be preferred by econometricians, rather than log-aggregates. Keywords: Inflation, aggregation, chain indices, persistence, monetary policy JEL Classification: C13, C22, C43, C82, E31.

A study is conducted to examine the optimality of conservative central bank in the absence of inflation, stabilization and electoral uncertainty.

We estimate an augmented multivariate GARCH-M model of inflation and output growth for Mexico at business cycle frequencies. The main findings are: (1) inflation uncertainty has a negative and significant effect on growth; (2) once the effect of inflation uncertainty is accounted for, lagged inflation does not have a direct negative effect on output growth; (3) However as predicted by Friedman and Ball, higher average inflation raises inflation uncertainty, and the overall net effect of average inflation on output growth in Mexico is negative. That is, average inflation is harmful to Mexican growth due to its impact on inflation uncertainty. (4) The Mexican Presidential election cycle significantly raises inflation uncertainty both during the year of the election and the year following the election which has correspondingly negative effects on output growth. Keywords: Latin America; Mexico; Inflation; Inflation uncertainty; Output growth

This paper reviews both theoretical and empirical issues regarding inflation and evaluates the contribution of Kyrtsou and Labys. Analytically it is very difficult to propose a general theory of inflation because as economies evolve over time both new causes of inflation emerge and the consequences of inflation become more complex. Kyrtsou and Labys perform several tests between the Primary Commodity Price component of the PPI and the CPI and construct a noisy chaotic multivariate model that describes the relationship between these two measures of inflation. JEL classification: C22; C23; E31; E60 Keywords: Inflation; Commodity prices; Chaos; Non-linear causality; Dynamic non-linearity; Mackey-Glass model

In this paper we model the Colombian inflation rate in terms of excess demand effects from asset, goods and factor markets. In contrast to previous results for a group of industrial economies, we find that domestic factors are a far more powerful influence on inflation than are external factors. The paper pays particular attention to the potential effects of the Constitutional Reform of 1991, which created a Central Bank independent from other parts of government. We find that the creation of an independent Central Bank did change some of the parameters of the model, as the disequilibria in goods and monetary markets were found to have a smaller effect on inflation after Central Bank independence was granted. JEL classification: C32; C51; E31; E58; O54 Keywords: Inflation; Cointegration; Market disequilibria; Central Bank independence; Colombia

This paper studies a link between inflation and economic activity that is built on two hypotheses. First, firms mitigate informational frictions in financial markets by accumulating retained earnings over a period of time. Second, firms allocate earnings among three competing uses--dividends, current investment, and the accumulation of internal funds--and inflation directly distorts this allocation decision as well as the real value of accumulated internal funds. The model predicts that the level of inflation--both unanticipated and expected inflation--as well as the variability of inflation distort firms' internal financing decisions, increases frictions in financial markets, reduces the level and efficiency of investment, and reduces aggregate output. The marginal effects of inflation are increasing in the inflation rate. JEL classification: E31; E44; G35 Keywords: Inflation; Credit markets; Internal financing

This paper is concerned with Bayesian inference in hidden Markov models. Focusing on switching regression models, we propose a new methodology that delivers a joint estimation of the parameters and the number of regimes that have actually appeared in the studied sample. The only prior information that is required on the latter quantity is an upper bound. We implement a particle filter algorithm to compute the corresponding estimates. Applying this methodology to the information content of the yield curve regarding future inflation in four OECD countries, we show that the predictive content for given country and combination of maturities is subject to regime switching. JEL classification: C11; E43 Keywords: Hidden Markov models; information content of the yield curve; Particle filters; State number determination; Switching regression models

Hyperinflation results from the creation and injection of fiat money into the economy. Using laboratory methods, this paper examines conditions under which fiat money can serve as a medium of exchange in a finite horizon economy while the government is active in the markets for goods. Consistent with the rational expectations hypothesis, issuing new fiat currency does not stabilize a hyperinflation; however, restricting government spending to the amount of tax revenue or reverting to backed money does. These findings are consistent with previous studies of historical data; thus this work confirms those findings from an alternative data source, the laboratory. JEL classification: C90; EA2; E63 Keywords: Hyperinflation; Fiat money

Unexpected inflation, disinflation or deflation cause arbitrary income transfers between an economy's borrowers and lenders. This redistribution results from distorted real interest rates that are too high when price level changes are over-predicted and too low when they are under-predicted. This article shows that in Australia's case, inflation expectations were mostly biased upwards throughout the 1990s, according to the Melbourne Institute of Applied Economic and Social Research series and to a new derived series based on bond yields, implying that real interest rates were too high over this time. In turn, this caused substantial arbitrary income transfers from debtors to creditors, estimated to have averaged up to 3 per cent of gross domestic product over the period.

The Kydland-Prescott, Barro-Gordon inflation bias result hinges on policymakers aiming at employment above potential. This has been questioned by academics and policymakers on the ground of realism. We show that even if policymakers target the normal level of employment, a bias arises if they are uncertain about economic conditions and are more sensitive to employment below than above normal. This view implies a positive association between inflation and the variance of output shocks. Cross-sectional empirical evidence from OECD economies supports this implication. We also discuss the consequences for the transparency of monetary policy and for central bank reform.

This paper examines the effects of inflation uncertainties on real GDP. We argue that different sources of inflation uncertainty have different impacts on real GDP. The empirical evidence points out that uncertainty arising from changing regression coefficients has negative impacts on real GDP. However, the effect of uncertainty due to heteroscedasticity in disturbances on real GDP is insignificant. Moreover, we find that the survey-based measure of inflation uncertainty appears to be more associated with the uncertainty that arises from changing regression coefficients. JEL classification: C320; E310 Keywords: Inflation uncertainty; Markov switching; Time-varying parameters

This paper investigates the relationship between inflation (the rate of monetary expansion) and economic growth in a monetary version of Benhabib and Farmer's (Journal of Economic Theory, 63, 19-41, 1994) one-sector endogenous growth model, in which money reduces transaction costs or shopping time. It is shown that when labour externalities are large there may be dual steady states, one of which is indeterminate and the other is determinate, and that the Tobin effect in the growth rate sense (i.e. higher rates of inflation increase the growth rate of the economy) always emerges in either of the steady states depending on the properties of a transaction cost technology.

The paper studies the realignments induced by inflation within an endogenous growth monetary economy. Accelerating inflation raises the ratio of the real wage to the real interest rate, and so raises the use of physical capital relative to human capital across all sectors. We find cointegration evidence for the US and UK economies consistent with a general equilibrium, Tobin-type, effect of inflation on input prices and capital intensity, even while the growth rate of output is reduced by inflation.

This research intends to find out if oil price shocks can cause inflation in the American economy and if rapid technological advances can lessen those inflationary effects. A computed general equilibrium model is used here, and petroleum prices are increased in 2000 along the path of the 1973-74 oil price shock.

Errors were made in measuring output gap in the United Kingdom in the 1970s and 1980s which contributed to errors in monetary policy. Other reasons for monetary policy error were also found.

Byline: Ali M. Kutan (2), Tansu Aksoy (3) Keywords: Fisher effect; public information arrival; emerging markets; financial services; volatility; asymmetric GARCH models. Abstract: We examine the impact of inflation on nominal stock returns and interest rates in Turkey's emerging economy, which has a moderately high, persistent, and volatile inflation rate. Empirical evidence indicates that Turkey's inflation increased more than nominal stock returns and interest rates, implying that real returns to investors declined during our sample period. Among the different sector indexes we study, the financials sector serves as the best hedge against expected inflation, and the Fisher effect appears to hold only for this sector. We also find that public information arrival plays an important role, especially in the stock market. Author Affiliation: (1) Department of Economics and Finance, Southern Illinois University, Edwardsville, IL, 62026-1102, U.S.A. (2) Center for European Integration Studies (ZEI), Bonn, Germany (3) Department of Economics and Finance, Southern Illinois University, Edwardsville, IL, 62026-1102, U.S.A Article History: Registration Date: 05/10/2004

Byline: Steven Horwitz (1) Keywords: inflation; Austrian school of economics; economic growth Abstract: Neoclassical treatments of inflation understate the costs associated with inflation, even at very low levels. A comparative institutions perspective that recognizes the epistemological properties of prices and the institutional process by which inflation takes place, reveals the costs of inflation to be both larger and more widespread than standard treatments suggest. This paper makes use of insights from Austrian economics, public choice theory, and the new institutional economics to argue that inflation imposes costs by undermining the coordinative properties of the price system. Not only are there the direct costs of increased economic error, but actors also divert resources away from direct want-satisfaction into attempts to either prevent or cope with the increased degree of uncertainty inflation imposes. These resource costs are best understood from a comparative institutions perspective, as traditional measures of economic well-being, such as GDP, cannot distinguish between exchanges that directly satisfy wants, and exchanges that are attempts to correct or prevent utility-diminishing activities. The analogy between these coping costs and rent-seeking behavior is explored. In addition, inflation imposes costs by undermining the coordinative properties of markets and inducing actors to, on the margin, prefer to seek wealth or allocate resources through the political process. Author Affiliation: (1) Department of Economics, St. Lawrence University, Canton, NY, 13617 Article History: Registration Date: 04/10/2004

We present a model in which purely monetary inflation systematically affects efficiency, welfare, and relative prices. The model focuses on the microeconomics of trade in search markets under inflation. Inflation, by increasing the cost of holding money, undermines the market's ability to sustain long-term customer relationships. Because those relationships generate the most efficient transactions patterns, overall welfare unambiguously declines.

In contrast to Mundell's inquiry on the optimality of currency areas, this article aims to understand under what circumstances a Pareto-dominant monetary union will be established. Using a multicountry overlapping generations model, we highlight gains from monetary union arising from reduced transactions costs and lower inflation. Despite these gains, countries acting independently will impose barriers to exchange through local currency restrictions, thereby creating transactions costs and providing an incentive for inflation. Therefore, the gains from monetary union are most likely to be lost without collective effort.

We use generalized method of moments to estimate a rational expectations aggregate demand/aggregate supply macroeconomic model for five European economies and the United States. Our aim is to examine whether supply or demand shocks have predominated in these economies during the post-war era, and whether shocks of either type have been primarily temporary or permanent in nature. We find that permanent or temporary demand shocks have been the dominant source of variance in output growth in all six countries, but there is a less consistent pattern for inflation. Permanent supply shocks had the dominant influence on autocorrelations. JEL classification: E32; C32 Keywords: Generalized method of moments; Business cycles

This paper presents a theory of the backward-bending Phillips curve. There is a minimum unemployment rate of inflation which offers a policy alternative to the non-accelerating inflation rate of unemployment. Nominal wages are downwardly rigid because workers oppose cuts initiated from within the employment relation. Instead, workers may accept real wage adjustments effected by increases in the general price level, a variable outside individual firms' control. This is why inflation `greases' labor market adjustment. However, workers resist too rapid a real wage adjustment, and too high an inflation generates wage resistance that cancels the grease effect and increases unemployment.

New evidence is presented on the information content of expected inflation derived from index-linked and conventional yield curves. Using monthly data the tests are done over three expectations horizons: 6, 12 and 24 months. In each case we find that there is little information content in this yield-curve-based expected inflation data. In the 12- and 24-four month cases, the tests call on an alternative expected inflation series derived from consumer expectations surveys. We show that the use of the latter data renders the yield-curve-based data insignificant over these horizons.