Summary
Inflation affects investments in a variety of ways. When inflation rises, the cost of goods and services increases, leading to a decrease in the value of money. This decrease in the purchasing power of money reduces the return on investments, making them less attractive to investors. Additionally, inflation can lead to higher interest rates, as central banks try to combat rising prices. Higher interest rates generally lead to lower stock prices, as companies have to pay more to borrow money, reducing their profits and making their stocks less attractive. Inflation can also lead to uncertainty in the markets, as investors are unsure of how much their investments will be worth in the future due to the changing prices. Inflation can also reduce the value of fixed-income investments such as bonds. When inflation rises, the return on these investments decreases, making them less attractive to investors. Additionally, rising inflation can lead to higher yields on government bonds, which can reduce the prices of other fixed income investments. This is because investors will move from other fixed income investments to government bonds in order to take advantage of the higher yields. Finally, inflation can lead to currency devaluation, as countries will often print more money to pay for rising prices. This can lead to a decrease in the value of the currency relative to other currencies, making investments denominated in that currency less attractive to foreign investors. In order to combat currency devaluation, governments often impose capital controls or adjust their exchange rates, making it more difficult for investors to move their funds abroad. Overall, inflation can have a significant impact on investments, making them less attractive and increasing uncertainty in the markets. Investors should be aware of these risks and take steps to protect their investments when inflation rises. This may include diversifying their portfolios and investing in assets with lower correlation to inflation, such as real estate or commodities. Additionally, they should consider hedging strategies such as futures contracts or options that can help protect their investments from changes in inflation.
Consensus Meter
This research was motivated by the need to examine macroeconomic policy-making in Indonesia given current constraints on fiscal and monetary sides. It evaluated the inflation-growth relationship to determine if there was room for inflating the economy without compromising debt repayment and social expenditure. It found that there was no statistically significant relationship between inflation and growth, suggesting that a more expansionary macroeconomic policy mix was needed. It also argued that the conditions for an independent central bank do not exist in Indonesia, given the lack of mechanisms for democratic oversight. This study underlines the importance of having proper economic policies in place in order to ensure sustainable economic growth and development.
Published By:
A Chowdhury - Journal of the Asia Pacific Economy, 2002 - Taylor & Francis
Cited By:
73
This study examined the effect of indexed bonds on investors' asset allocation decisions. The researchers created a series of hypothetical indexed bond returns and found that these bonds have less volatility than conventional bonds and an almost uncorrelated return to stocks. An examination of asset allocation among stocks, indexed bonds, conventional Treasuries, and a riskless asset suggests that substantial weight should be given to indexed bonds in an efficient portfolio. This conclusion is also supported by analysis of the actual returns on U.S Treasury Inflation-Indexed Securities from 1997-2003. The findings of this study suggest that indexed bonds should be given serious consideration by investors since they offer substantial diversification benefits with potentially low expected returns.
Published By:
SP Kothari, J Shanken - Financial Analysts Journal, 2004 - Taylor & Francis
Cited By:
116
This paper examines the impact of inflation rate on economic growth in Pakistan, with two threshold levels of 6% and 11%. It also investigates the nonlinear relationship between inflation and investment with a threshold of 7%. The results show that inflation below the first threshold affects economic growth positively but insignificantly; at moderate rates of inflation, between the two threshold levels, the effect of inflation is significant and strongly negative. At high rates of inflation, above the second threshold, the marginal impact of additional inflation on economic growth diminishes but is still significantly negative. Investment is affected negatively and significantly when inflation rises above the 7% threshold. Therefore, it is desirable to keep inflation below 6% to achieve robust economic growth and investment. The Pakistan Institute of Development Economics has been researching and publishing The Pakistan Development Review for over 50 years, providing a firm academic basis to economic policy-making and a window for the outside world to view Pakistan's socio-economic problems. The journal is edited by academics with an editorial board of 36 outstanding scholars in the field of Economics and related social sciences.
Published By:
N Iqbal, S Nawaz - The Pakistan Development Review, 2009 - JSTOR
Cited By:
78
Foreign Direct Investment (FDI) is an important vehicle for the transfer of advanced technology, contributing more to economic growth than domestic investment. This study examines the role of FDI and its interaction with human capital in the process of technology diffusion and economic growth in developing countries. Results from a cross-country regression framework suggest that FDI is more productive than domestic investment only when the host country has a minimum threshold stock of human capital. The main channel through which FDI contributes to economic growth seems to be by stimulating technological progress rather than by increasing total capital accumulation in the host economy. This study highlights the importance of both FDI and human capital for economic growth, and provides evidence of the complementarity between them.
Published By:
E Borensztein, J De Gregorio, JW Lee - Journal of international Economics, 1998 - Elsevier
Cited By:
10450
Inflation is one of the most challenging problems facing African countries, and precious metals may provide a possible solution. Empirical evidence for African countries is scant, so this paper seeks to analyze the ability of four precious metals (gold, platinum, silver, and palladium) to hedge against inflation in six African producers (Congo, Ghana, Morocco, Namibia, South Africa, and Tanzania). The results of the baseline model show that gold and palladium can be used as hedging tools in the long-term, while gold and platinum performed better in the short-term. This research is important to investors, policy makers, and other stakeholders as it provides knowledge of how best to predict investments in precious metals with inflation. It also highlights the potential of these metals to provide a hedge against risks from inflation.
Published By:
OB Adekoya, JA Oliyide, H Tahir - Resources Policy, 2021 - Elsevier
Cited By:
12