A fresh look at the inflation-hedging attributes of residential property investments in emerging markets: evidence from Nigeria

PurposeThis study reinvestigates the short-run and long-run inflation-hedging attributes of residential property assets in the Nigerian property market, based on variations in property types and location.Design/methodology/approachData used for this study comprised the holding period returns of three residential property types, namely bungalow, block of flats and detached house during 1999–2018. These were obtained from property practitioners in Lagos, Abuja and Port Harcourt, respectively. The inflation values obtained from the National Bureau of Statistics were split into actual, expected and unexpected components. Fama and Schwert’s (1977) ordered least square (OLS) regression was used to assess the short-term inflation hedging efficacy. Afterwards, the long-run link between residential property and inflation was examined using the Johansen and Juselius cointegration test.FindingsThe results showed that despite the variations in hedging behaviour across property types in the three locations, residential property assets significantly provided protection over actual, expected and unexpected inflation in the short run based on the OLS regression analysis. The result of the Johansen and Juselius cointegration test also established a long-term link between the residential property assets and actual inflation. However, mixed results were found on the link between residential property and expected and unexpected inflation, as some of the assets did not effectively hedge these inflation components in the long run.Practical implicationsThe study implied that the differences in property types and geographic locations are crucial in establishing the short-run and long-run inflation-hedging attributes of residential property assets and should be factored into consideration.Originality/valueThe paper complements the existing body of knowledge on the inflation-hedging attributes of residential property in emerging markets by determining the effects of variation in house types and geographic differences on the analysis.

Advice from a systems-biology model of the Corona epidemics

Using standard systems biology methodologies a 14-compartment dynamic model was developed for the Corona virus epidemic. The model predicts that : (i) it will be impossible to limit lockdown intensity such that sufficient herd immunity develops for this epidemic to die down, (ii) the death toll from the SARS-CoV-2 virus decreases very strongly with increasing intensity of the lockdown, but (iii) the duration of the epidemic increases at first with that intensity and then decreases again, such that (iv) it may be best to begin with selecting a lockdown intensity beyond the intensity that leads to the maximum duration, (v) an intermittent lock down strategy should also work and be more acceptable socially and economically, (vi) an initially intensive but adaptive lockdown strategy should be most efficient, both in terms of its low number casualties and shorter duration, (vii) such an adaptive lockdown strategy offers the advantage of being robust to unexpected imports of the virus, e.g. due to international travel, (viii) the eradication strategy may still be superior as it leads to even fewer deaths and a shorter period of economic lockdown maximum, but should have the adaptive strategy as backup in case of unexpected inflation imports (ix) earlier detection of infections is perhaps the most effective way in which the epidemic can be controlled more readily, whilst waiting for vaccines.

Revisiting the relationship between unexpected inflation and output in the presence of indexation

Purpose This paper aims to investigate the relationship between output and unanticipated inflation when wages are indexed for the loss of purchasing power. The authors argue that the monetary authority remains useful when firms that face rigid demand index wages to compensate for the loss of purchasing power, unlike Fischer (1977), who suggested that monetary policy loses effectiveness when firms index wages. Design/methodology/approach This paper develops a simple theoretical model followed by an empirical investigation of the relationship between output and unanticipated inflation in the presence of indexation. The theoretical model assumes a perfectly competitive firm that produces a final good that has no close substitutes using one factor, labor. The demand for the product is rigid. The empirical work considers quarterly US data from 1982Q1 to 2017Q1 and uses the Generalized Method of Moments in which endogenous variables are instrumented using their own lags. This paper further considers the period before and after the recent global financial crisis. Findings This paper shows that unexpected inflation decreases the growth rate of output in the USA. The decrease is quantitatively and qualitatively stronger before the financial crisis than after the crisis. This finding suggests that the Federal Reserve should maintain higher expectations of inflation and then surprise the public with lower inflation rates. The results further suggest that regardless of how expectations are formed, firms and workers agree on the nominal wage that is equal to the realized marginal revenue product of labor. Originality/value This paper sheds light on the behavior of the central bank and its relative ineffectiveness in light of the recent economic recession.

Monetary Policy and the Redistribution Channel

This paper evaluates the role of redistribution in the transmission mechanism of monetary policy to consumption. Three channels affect aggregate spending when winners and losers have different marginal propensities to consume: an earnings heterogeneity channel from unequal income gains, a Fisher channel from unexpected inflation, and an interest rate exposure channel from real interest rate changes. Sufficient statistics from Italian and US data suggest that all three channels are likely to amplify the effects of monetary policy. (JEL E21, E31, E43, E52)

Great Expectations: A Tactical Asset Allocation Framework for Diversified Real Asset Portfolios

Diversified real return strategies are multi-asset portfolios structured to possess a heightened sensitivity to inflation relative to traditional stocks and bonds. The majority of such strategies focus on a single measure of inflation, the Consumer Price Index. However, a more comprehensive way to construct inflation-sensitive portfolios is in terms of expected and unexpected inflation, the latter defined as the difference between a particular measure of inflation expectations and realized inflation. To that end, in this article, the authors describe an investment framework that dynamically classifies each type of inflation as belonging to one type of state: a stable state, in which inflation continues its longer-term trend, and a deviant state, in which expected or unexpected inflation departs significantly from its longer-term average. The authors show how the framework can be used to build portfolios using information from both stable and deviant states to outperform realized inflation through different market environments.

Effect of inflation uncertainty on price dispersion in Iran

This paper studies the inflation relationship analysis and inflation uncertainty with relative price’ dispersion in Iran by using the ordinary minimum squares method, during monthly data 1991:4-2012:12. In this paper, we used the GARCH technique in order to modeling and measuring the inflation uncertainty variable. The results show that inflation uncertainty increasing leads to increased relative price dispersion. Also unexpected inflation regardless of being positive or negative increases the relative price dispersion considerably, but the unexpected inflation decomposition to two positive and negative components and lack of considering them in the equation showed that each component is in a high significant level and cannot be considered for symmetric effect of positive or negative unexpected inflation. Corporations change their price against the positive unexpected inflation alternatively in responding to the inflation shocks and consequently the price will be fluctuated for reaching the balance strictly, therefore positive unexpected inflation cases have been increasing in relative price dispersion. In the other hand, corporations have no tendency for changing the goods’ price against the negative unexpected inflation. Also according to the results, inflation variable coefficient is significant from the statistical viewpoint and this means that this variable increases the relative dispersion considerably.

Bootstrapping and Inflation Hedging Performance of Korean Equity Funds

This paper examines the inflation hedging performance separated into expected and unexpected inflation in Korean equity funds. In particular, using the bootstrap approach, we identify whether the inflation hedging performance is based on skill or luck. We use the equity funds of the average net asset value (NAV) over 5 billion Korean won and over the 80% stock position. The sample data cover the period from January 2002 to March 2015. The main findings are as follows. First, most equity funds demonstrate a hedging performance against the unexpected inflation shock and this hedging performance seems to come from the fund manager’s skill. Second, our findings are robust across the sieve bootstrap results for the serial dependence and heteroscedasticity. Third, the equity funds have slightly different inflation hedging performances depending on their investment style. Among the investment styles, small-cap, growth, or small and growth style funds demonstrate more hedging performance against unexpected inflation shock. This hedging performance seems to come from the fund manager’s skill. Finally, in the case of the funds separated by winner and loser, the winner funds have more hedging performance for unexpected inflation shock than the loser funds.