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Review of International Inflationary Episodes: A Survival Analysis by Dr. Ali Abderrezak, Johnson County Community College, Kansas, USA International Inflationary.

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Presentation on theme: "Review of International Inflationary Episodes: A Survival Analysis by Dr. Ali Abderrezak, Johnson County Community College, Kansas, USA International Inflationary."— Presentation transcript:

1 Review of International Inflationary Episodes: A Survival Analysis by Dr. Ali Abderrezak, Johnson County Community College, Kansas, USA International Inflationary Episodes: Is it a waste matter of time? By Engineer Hasan AlSayegh

2 By Engr. Hasan AlSayegh Overview Article analyzes past inflationary periods Testing hypothesis: Do inflationary periods terminate (end) as time passes? Sample Space Used, Model Historical References Side Affects: Redistribution of Wealth Personal Comments Questions and Answers

3 By Engr. Hasan AlSayegh Abstract of Article Why it is important to study past inflation Insight into future Insight into future Who and how does inflation impact Developing countries Developing countries Impacts Balance of Payments (Trade) Impacts Balance of Payments (Trade) Impacts Bond, Currency markets Impacts Bond, Currency markets International Inflationary Episodes (IE) Likely to terminate as they grow older Likely to terminate as they grow older

4 By Engr. Hasan AlSayegh Abstract of Article Covariates: Cumulative inflation Cumulative inflation Geometric (annual) inflation Geometric (annual) inflation Maximum (annual) inflation Maximum (annual) inflation Inflation Bubble Credible fiscal and monetary policies

5 By Engr. Hasan AlSayegh Terms and References MonetaristsHyperinflation High inflation

6 By Engr. Hasan AlSayegh Terms and References Positive duration dependence Negative duration dependence Constant-state duration dependence

7 By Engr. Hasan AlSayegh Various Ideas, Notions Author: Strong causal relationship between variations in money supply and variations in aggregate price levels Cagan (1956), studied 6 European markets : Monetarists – rapidly growing money supply against stable money demand balances causes inflation

8 By Engr. Hasan AlSayegh History K. Helfferich (1923): inflation due to balance of payments Based on Germany post World War I Based on Germany post World War I Cagan (1956): Stable functional relationship linked real money balances to expected inflation Stable functional relationship linked real money balances to expected inflation Hyperinflation cause: rapid growth in exogenous money supply against a stable demand for real money balances (Current example China, Asia, South America) Hyperinflation cause: rapid growth in exogenous money supply against a stable demand for real money balances (Current example China, Asia, South America)

9 By Engr. Hasan AlSayegh History Baily (1956): Inflation is a form of taxation Inflation is a form of taxation Pazos (1972): Wage indexation compounding efforts to effectively combat hyperinflation Wage indexation compounding efforts to effectively combat hyperinflation Capie (1986): Combination of weak governments, political disorder, unrest provide necessary combination of weak govt., political disorder: loss of fiscal discipline: hyperinflation Combination of weak governments, political disorder, unrest provide necessary combination of weak govt., political disorder: loss of fiscal discipline: hyperinflation

10 By Engr. Hasan AlSayegh Sample Space Used, Model Based on Fischer data (2002): 45 high inflation episodes 45 high inflation episodes 15 hyperinflation episodes 15 hyperinflation episodes 11 high inflation episodes 11 high inflation episodes Based on Fischer Based on Fischer Generalized Weibull Model

11 By Engr. Hasan AlSayegh Table 1 Descriptive Statistics of Inflationary Episodes

12 By Engr. Hasan AlSayegh Historical References Germany post World War I In 1914, 4.2 German Marks = $1 USD In 1914, 4.2 German Marks = $1 USD In Dec. 1923, 4,200,000,000,000 = $1 USD In Dec. 1923, 4,200,000,000,000 = $1 USD Due to war reparations, which were finally repaid 3 October 2010 Due to war reparations, which were finally repaid 3 October 2010

13 By Engr. Hasan AlSayegh Table 5: Percentile of Survival Distributions

14 By Engr. Hasan AlSayegh Side Affects: Redistribution of Wealth Wealth is transferred from public to govt. Federal Reserve overnight-lending window Federal Reserve overnight-lending window Wealth transferred from debtors to creditors Those lending the money become richer Those lending the money become richer

15 By Engr. Hasan AlSayegh Author Conclusions Governments and Central Banks cannot take a passive approach to dealing with inflation Critical: credible government commitment to balance its budgets “To avoid misallocation of wealth and inefficiency resulting from IE, credible macroeconomic reforms are fundamental for economic stabilization and sustainable economic growth

16 By Engr. Hasan AlSayegh Personal Comments Sample space is too small Author assumes fiscal & monetary policies are what’s needed to fight inflation; fails to address how they could have created inflation Author addresses inflation as something that happens by “accident” due to market forces, not intentionally due to government plans

17 By Engr. Hasan AlSayegh Personal Comments Academic Inflation Grades and degrees being inflated in value to academic dishonesty Grades and degrees being inflated in value to academic dishonesty East India Trading Company ( ) Mega corporation Mega corporation Initially traded in spices, silks, opium, etc. Initially traded in spices, silks, opium, etc. Later owned and RULED large areas of India, using administrative and military rule Later owned and RULED large areas of India, using administrative and military rule Due to its strength and size, ANY inflation data for that period is artificial, due to monopoly Due to its strength and size, ANY inflation data for that period is artificial, due to monopoly

18 By Engr. Hasan AlSayegh Personal Comments Dutch East India Company ( ) First mega corporation First mega corporation Possessed quasi-governmental powers Possessed quasi-governmental powers Ability to wage war, imprison and execute convicts, negotiate treaties Ability to wage war, imprison and execute convicts, negotiate treaties Also can coin money, establish colonies Also can coin money, establish colonies Examples of modern mega corps: Boeing, Airbus, GE, Halliburton, Exxon-Mobil, Bank of America, Citi Boeing, Airbus, GE, Halliburton, Exxon-Mobil, Bank of America, Citi

19 By Engr. Hasan AlSayegh Questions & Answers


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