Literature[edit | edit source]
Broad scale review on Inflation[edit | edit source]
Making sense of consumers' inflation perceptions and expectations–the role of (un) certainty
Meyler, A., & Reiche, L. (2021). Making sense of consumers’ inflation perceptions and expectations–the role of (un) certainty. Economic Bulletin Articles, 2.
- Used data from the European Commission Consumer Survey (ECCS) that has been happening since 1985 to understand what people think about inflation.
- Inflation perceptions are linked to sociodemographic traits with younger people, women, those with lower education levels, and lower incomes expecting higher inflation levels.
- On average, consumer inflation perceptions tend to be significantly higher than actual inflation.
Retailing in times of soaring inflation: What we know, what we don't know, and a research agenda
Dekimpe, M. G., & van Heerde, H. J. (2023). Retailing in times of soaring inflation: What we know, what we don't know, and a research agenda. Journal of Retailing.
- Analyses the current state of inflation and the causes behind recent surge in inflation including pandemic-related policies, increased demand, supply-demand imbalances, Russia's invasion of Ukraine, unfavorable weather conditions, increasing economic tensions between the US/Europe and China.
- Expectations of future inflation are largely driven by consumers’ direct experiences, primarily with a few frequently purchased products such as gasoline, coffee and milk.
Are commodity futures a hedge against inflation? A Markov-switching approach
Liu, C., Zhang, X., & Zhou, Z. (2023). Are commodity futures a hedge against inflation? A Markov-switching approach. International Review of Financial Analysis, 86, 102492.
- Precious metals can hedge inflation risks, although the inflation hedging capacity of them is not as reliable as that of industrial metals, investors who hold industrial metals receive compensation for losses caused by negative bond returns when the market is under upward pressure on inflation.
- The study considered common stocks and government bonds in the model, however the results were consistent and industrial metals still stood out as strong inflation hedges.
- The effectiveness of commodity futures as inflation hedges depends on the time horizon and investors should carefully consider the duration over which they expect to hedge against inflation.
Development of a Machine learning assessment method for renewable energy investment decision making
Izanloo, M., Aslani, A., & Zahedi, R. (2022). Development of a Machine learning assessment method for renewable energy investment decision making. Applied Energy, 327, 120096.
- Electricity generation from RETs and electricity price fluctuation are the most important criteria for investment decisions in RET investments.
- Developed and developing countries with stable economic conditions, supportive government policies for renewable energy are more favorable for RET investment.
One Asset Does Not Fit All: Inflation Hedging by Index and Horizon
D'Amico, S., & King, T. B. (2023). One Asset Does Not Fit All: Inflation Hedging by Index and Horizon.
- Looks into various assets and strategies for hedging inflation, particularly focusing on post 1999 and post COVID 19 periods.
- Commodities especially oil and natural gas, exhibit high correlations (70-95%) with headline inflation in both post 1999 and post covid 19 periods and maintains its inflation hedging capabilities.
- Broad stock indices particularly driven by energy-related stocks can hedge headline inflation.
- Real estate also does well in hedging consumer prices and producer prices at longer horizons.
- Over post 1999 sample, gold does not show any ability to hedge headline inflation contrary to conventional wisdom.
Can grid-tied solar photovoltaics lead to residential heating electrification? A techno-economic case study in the midwestern U.S.
Sommerfeldt, N., & Pearce, J. M. (2023). Can grid-tied solar photovoltaics lead to residential heating electrification? A techno-economic case study in the midwestern US. Applied Energy, 336, 120838.
- PV+HP technical and economic feasibility against natural gas heating
- Comparison of 4 heat supply systems - natural gas + grid electricity, natural gas + PV, Heat pumps + grid, PV + heat pumps
- Range of techno-economic scenarios considered like installation costs, inflation, energy prices
- Presents scenarios with long-term inflation rates of 2% and 4% above baseline inflation
- Results convey PV+HP costs equal or more under typical inflation conditions but acts as a hedge under high inflation
Inflation protected investment strategies
Mahlstedt, M., & Zagst, R. (2016). Inflation protected investment strategies. Risks, 4(2), 9.
- Investigates inflation-hedging potential of different asset classes during different inflation regimes
- Treasury Inflation-Protected Securities and other inflation linked bonds require a premium payment and loss possibility during low inflation
- Suggests a investment strategy - decouples performance from inflation during low inflation and protects against during inflation highs
- Lit review stocks and inflation hedging summary - well for long horizon and poorly for shorter time horizons
- For bonds its similar to stocks for long horizon and no inflation hedging properties for shorter horizons
- Commodities show best hedging abilities with literature favoring long-term, short term varies
- Gold shows partial hedging in long run and is regime dependant
- Use of markov-switching models to validate
Common Stocks as a Hedge Against Inflation
Bodie, Z. (1976). Common stocks as a hedge against inflation. The journal of finance, 31(2), 459-470.
- Used NYSE equity returns and CPI data for a 20 year period 1953 to 1972 and different data frequencies
- Regression mythology to calculate equities and their relationship with inflation
- Results conclude that real return on equity is perversely related in the short run
- Concludes that stocks must be sold short in order to be used as inflation hedges
Horizon sensitivity of the inflation hedge of stocks
Schotman, P. C., & Schweitzer, M. (2000). Horizon sensitivity of the inflation hedge of stocks. Journal of empirical Finance, 7(3-4), 301-315.
- Describes how the effectiveness of using stocks as a hedge against inflation depends on the time horizon
- Stocks serve as an effective hedge if the investment horizon is 15 years or longer
- Criticizes traditional Fisher regression estimates for not accounting for the impact of different investment periods
The golden dilemma
Erb, C. B., & Harvey, C. R. (2013). The golden dilemma. Financial Analysts Journal, 69(4), 10-42.
- Used USA CPI data and monthly data frequency to determine gold as an inflation hedge
- Observes a single outlier, the year1980 which accounts for a positive relationship between gold and inflation
- Very less evidence excluding the outlier regardless of the time horizon
Hedging Inflation Internationally
Bruno, S., & Chincarini, L. B. (2010). Hedging inflation internationally. Available at SSRN 1536959.
- Studies best asset class hedges for 19 countries with varying levels of inflation histories
- Describes how for Latin American countries namely Argentina, Brazil, Chile, Mexico, and Peru its impossible to get a positive real return with protection from inflation
- During high inflationary periods, the advised best practice for Latin countries is shorting domestic currencies and investing in other currencies
- For other countries advises a portfolio of short-term bonds, longer-term bonds, some gold, some oil, and some emerging market equities
- Empirical results about TIPs only slightly effective for protecting against inflation
Energy Prices Impact on Inflationary Spiral
Bednář, O., Čečrdlová, A., Kadeřábková, B., & Řežábek, P. (2022). Energy prices impact on inflationary Spiral. Energies, 15(9), 3443.
- Discusses the increasing role of electricity in impacting inflation, especially in Europe
- Positive linear relationship between electricity contribution and the HICP post-2009, indicating a significant impact on inflation
- Research emphasizes a negative association between renewable electricity consumption and inflation and thus the need to explore more
Review on PV as an inflation hedge[edit | edit source]
Economic analysis of hybrid photovoltaic/thermal solar systems and comparison with standard PV modules Tselepis, S., & Tripanagnostopoulos, Y. (2002, October). Economic analysis of hybrid photovoltaic/thermal solar systems and comparison with standard PV modules. In Proceedings of the international conference PV in Europe (Vol. 7, No. 11).
- Comparison between PVT and standard PV systems tested in Athens, orientation due South at an inclination of 40º.
- Hybrid system demonstrated shorter payback time of less than 10 hours for domestic systems as well
- Potential for huge market opportunity for PV technology without the need for heavy subsidies
Energy, cost and LCA results of PV and hybrid PV/T solar systems
Tripanagnostopoulos, Y., Souliotis, M., Battisti, R., & Corrado, A. (2005). Energy, cost and LCA results of PV and hybrid PV/T solar systems. Progress in Photovoltaics: Research and applications, 13(3), 235-250.
- hybrid PV/T systems with heat recovery unit and modified configurations demonstrate potential advantages in energy production and cost efficiency
- sensitivity to operating temperatures and recycling practices
- systems operating at lower temperature achieve significantly lower payback values
Solar Electric Investment Analysis
Hay, F. J. (2016). Solar Electric Investment Analysis. Institute of Agriculture and Natural.
- 0.5 percent annual degradation under standard warranty and affect on lifetime production
- Consideration of site specific factors, shading, temperature and orientation
- US based solar investment analysis
- Two models are evaluated and payback period is computed under 2% inflation and different escalation rates
Economic viability analysis of a roof integrated Photovoltaic/Thermal (PV/T) system in Athens.
THEODOROPOULOS, N., MENAGIAS, K., KOSTOULAS, A., & VOKAS, G. Economic viability analysis of a roof integrated Photovoltaic/Thermal (PV/T) system in Athens.
- Main challenge of standard PV is reduced efficiency at high temperatures
- PVT laminating PV cells onto the absorber plate, converting solar radiation into both electricity and thermal energy
- NPV calculated for different tilt angles shows with varying returns implying the importance of this variable
Cost competitiveness of a novel PVT-based solar combined heating and power system: Influence of economic parameters and financial incentives
Herrando, M., Ramos, A., & Zabalza, I. (2018). Cost competitiveness of a novel PVT-based solar combined heating and power system: Influence of economic parameters and financial incentives. Energy conversion and management, 166, 758-770.
- Cost competitiveness assessed for an optimized PVT collector system in 3 locations with sensitivity analysis
- Includes a sensitivity analysis to account for influence of inflation, discount rates and utility prices
- Government incentives and support is also included in analysis
- Possible PBT of less than 10 years in Zaragoza in high inflation
- PVT collectors price being main factor along with solar irradiance but valid for even UK
