Relationship between Inflation and Other Macro Economics Factors: Comparative Study of Germany, Japan and New Zealand

Abstract

One of the major concerns in different countries today is to manage inflation and to manage the resources according to it. Even though there are many factors that affect economic growth that can affect inflation, the concern of this research is regarding Consumer Price Index. The first objective of this study is to investigate the relationship between the consumer price index and Agricultural Land, Urban Population, Trade, Military Expenditure, Primary Energy Consumption, Natural Gas Flaring, and Oil–Refining Capacity. This study includes time series data from 1980 to 2020. Johansen's cointegration method is used to find cointegration, and the significance of long-run and short-term variables is tested. The findings of this study conclude that in the case of Germany, normalized coefficients show consumer price index, Agricultural Land, Military Expenditure, Oil Refining Capacity, and Primary Energy Consumption have a positive and significant impact, Whereas Trade, Natural Gas Flaring, and Urban Population has a negative and significant impact on consumer price index. On the other hand, Japan normalized coefficients show that consumer price index, Agricultural Land, and Primary Energy Consumption have a negative and significant impact. Whereas Military Expenditure, Oil Refining Capacity, Trade, Natural Gas Flaring, and Urban Population have a positive and significant impact on the consumer price index, if we talk about New Zealand, their long run coefficient shows that the normalized coefficients show that consumer price index, Oil Refining Capacity, Trade, and Urban Population has negative and significant impact Whereas Military Expenditure, Primary Energy Consumption, and Natural Gas Flaring has a positive and significant impact on consumer price index. Similarly, the results of the Germany-adjusted coefficients show that Military Expenditure and Urban Population have a positive significant, while primary consumption and trade have a negative relationship with the consumer price index. According to Japan and New Zealand, Oil Refining Capacity has a significant and positive relationship with the consumer price index in the short run. The study, therefore, recommends that the governments of New Zealand, Germany, and Japan should take more initiatives to increase their urban population and trade because these activities help to decrease the inflation in New Zealand, Germany, and Japan.