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Testing the Kumara Swamy Theorem of inflationary gap for the Group of Twenty (G-20) countries.


This paper empirically tests the Kumara Swamy Theorem of the Inflationary Gap for the 19 countries that are included in G-20 designation over the period 1999-2012. Data were obtained from the World Bank's World Development Indicators database for each country's Money Supply, Gross National Income and Consumer Price Index, as well as the Bank of England. Results are comparable to the seminal works of Swamy (1982) and (2009) that tested the theorem on the Nigerian economy, and are consistent with recent studies by Faseruk, Bauer and Glew (2012) for countries in the North American Free Trade Agreement, and Glew, Bauer, and Faseruk (2013) for the European Union. The diverse group of countries in the G-20 allows subsamples, such as the very affluent Group of Seven (G-7) nations and the emerging nations of Brazil, Russia, India, China, and South Africa (BRICS).

The Kumara Swamy Theorem of the Inflationary Gap has provided significant and notable explanatory power for the relationship between the growth of the money supply and real GNP within the current study in terms of direction. This paper provides further evidence to previous findings that the theorem is best understood as a long-term average and to disregard short-term fluctuations that ought to be corrected in the marketplace in short order. Graphical evidence demonstrates when short-term fluctuations in the inflationary gap occurred and provides explanations based on market data.

Keywords: Inflationary gap. Group of Twenty (G-20), Kumara Swamy Theorem

JEL Classification: C82, E3I, E52, E58


Professor Swamy proposed a unique and well thought out theorem to relate money supply growth to economic output. He tested the theorem for the Nigerian economy in seminal articles "A Financial Management Analysis of Nigerian Economic Situation: Problems and Solutions" in the Nigerian Journal of Financial Management (1982) (1) and "Empirical Testing of the Kumara Swamy Theorem of Inflation and Gap: Nigerian Economy in Perspective" in the Journal of Financial Management and Analysis (2009) (2). Lazaridis and Livanis (2010) (3) tested the theorem outside the developing world in two countries in Europe, Greece and Cyprus, while Bauer and Faseruk (2012) (4) examined Canada. Subsequently, Faseruk, Bauer and Glew (2012) (5) extended testing to the nations of the North American Free Trade Agreement, namely Canada, Mexico and the U.S.A. Finally, Glew, Bauer and Faseruk (2013) (6) tested the theorem using data from the European Union.

Professor Swamy proposed this unique Kumara Swamy Theorem of Inflationary Gap during the convocation lecture on 'Inflation and Economic Development of Nigeria' delivered at the Institute of Management and Technology, Enugu, Nigeria on March 3, 1978, which is as follows :
   The growth of the money supply in a country must
   be twice the growth of real output to maintain price
   stability. Thus the difference between money
   supply and real output is the actual inflationary
   gap, while the permissible inflationary gap is the
   difference between real output and double
   (permissible) money supply. The excess of the
   actual gap over the permissible gap is referred to as
   the excess inflationary gap caused by non-economic
   development factors like maintenance of
   unproductive enterprises (non-performing assets)
   and we may add corruption and fraud premiums (1).

Faseruk, Roubi and Barth (1993) (7) along with Swamy (2009) have contended that chronic high levels of inflation began to haunt markets in the late 1960s persisting through most of the 1970s with its effects still being felt today. The persistence of inflation is exacerbated by policy makers that enact policies designed to control core inflation without adequate knowledge of the permissible inflationary gap and the excess inflationary gap, as succinctly demonstrated in the Kumara Swamy Theorem of Inflationary Gap, (Swamy 2009). Consequently, it is important to have a model that both explains the nature of the inflation in terms of the permissible inflationary gap and excess inflationary gap, as well as outlining the need to have the growth in the money supply outpace the growth of real GNP to maintain price stability. The rational size of the inflationary gap is determined by establishing a synchronized correlation between the growth of real GNP (as measured by GN1) and the money supply. All these antecedent conditions were cogently articulated into a concise testable model referred to as the Kumara Swamy Theorem of Inflationary Gap which states.
   The growth of money supply of a country must be
   twice the growth of real GNP to maintain price
   stability, and the rational size of inflationary gap
   is determined by establishing a synchronized
   correlation between the growth of real GNP and
   money supply (2).


The purpose of this study is to test and comment on the Kumara Swamy Theorem of Inflationary Gap in the countries of the Group of Twenty (G-20) nations from January 1, 1999 to December 31,2012. The European Union holds a seat at this gathering, which limits the individual countries to 19. Glew, Bauer, and Faseruk (2013) provide a detailed account of testing of the Kumara Swamy Theorem of Inflationary Gap in the European Union. These results are referenced herein for completeness.

The G-20 nations include the most affluent countries in the world. Seven of these jurisdictions comprise the G-7, which have been holding economic summits since 1976, when Canada was admitted. The gathering expanded slightly in 1998, when Russia joined to form the Group of Eight (G-8). In recent years, four rapidly emerging markets have broken into the top ten jurisdictions in terms of wealth: Brazil (7), Russia (10), India (9), and China (2). South Africa is often included with these four due to its economic dominance of the African continent and the group is collectively referred to by the acronym 'BRICS'. Table 1 lists Group of Twenty (G-20) countries with their affiliations. Relative sizes are indicated by both Gross National Income (GNI) expressed in U.S. dollars for comparison purposes and population as of 2012. The members of the G-20 are dispersed around the globe but their relative wealth and populations provide a suitable group for comparison. For graphical presentation purposes, the convenient sub-groupings of the G-7 and the 'BRICS' countries are portrayed. The remaining seven countries are quite similar in terms of relative wealth, though Australia enjoys much higher GNI per capita owing to a very productive economy and low population.

The final sections of the paper provide comparisons between current results and the previous studies. First, the NAFTA results of Faseruk, Bauer, and Glew (2012) are extended by another year in this study, since these countries are all members of the G-20. Brazil is found to be more similar to Mexico than either of Mexico's North American trading partners in NAFTA. The average outcomes for the NAFTA countries fall within the bounds of the G-20 results but tend to display less variation in the money supply with changes in the economic output, measured by GNI. The average excess gap in the North American group is relatively low, but China, Saudi Arabia, and South Africa all have negative gaps, as expected for countries with sovereign wealth funds, rather than increased government debt. The Kumara Swamy Theorem of Inflationary Gap proves to be consistent, providing an excellent indicator of monetary control on average, while also focusing attention on the problematic annual excesses for further analysis and resolution.

Glew, Bauer, and Faseruk (2013) tested the Kumara Swamy Theorem of Inflationary Gap in European Union and Eurozone countries with the four largest countries in EU included in the G-7 and thus the G-20. Compliance with the rule by the members of this global grouping can be compared to the nations joined in the regional trading pact, whose wealth levels vary to a greater extent. Turkey is currently seeking accession into the EU and it may be compared with similar new entrants to this trading union. Thus, the results of the G-20 study are readily comparable with EU results.

Methodology Used

The data used in the study are obtained from the World Bank's World Development Indicators database for the 19 nations of interest using the variables: Money Supply ([M.sub.1]), Gross National Income (GNI), and Consumer Price Index (CPI). The data are annual figures covering the 14-year period from January 1, 1999 to December 31,2012. Although the dataset could be extended to an earlier date for many of the countries, the three members of the Eurozone which share a common currency (France, Germany, and Italy) adopted the Euro in 1999 for accounting (book) purposes prior to its general use in commerce. Russia had been adapting to trading changes with the dismantling of the Council for Mutual Economic Assistance (COMECON) agreement through the 1990s and became a member of the G-8 in 1998, making 1999 a reasonable choice as well. Further, Brazil, India, and China have become much stronger economies since 2001, when the BRIC acronym was coined, making the 1999 start date appropriate to capture their current rate of development. Finally, the G-20 itself was formally inaugurated in 1999, which may have altered the effected economies. The World Bank variable definitions and data series codes are included verbatim to provide clarity. Where the data series were incomplete, the alternative data source and method of estimation is described following the initial definition.

* Money Supply ([M.sub.1])

Money (current LCU) (FM.LBL.MONY.CN):

Money is the sum of currency outside banks and demand deposits other than those of central government. This series, frequently referred to as [M.sub.1] is a narrower definition of money than [M.sub.2]. Data are in current local currency.

U.K. money supply was blank under the World Bank series code. Data were retrieved from the Bank of England Statistical Interactive Database (Series LPMVWYE). Monthly amounts outstanding of monetary financial institutions' sterling and all foreign currency [M.sub.1] (U.K. estimate of EMU aggregate) liabilities to private and public sectors (in sterling millions) not seasonally adjusted. The average of the monthly amounts in each year provided an annual data-point for each calendar year.

* Gross National Product (GNP)

GNI (current LCU) (NY.GNP.MKTP.CN): GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. Data are in current local currency.

GNI must necessarily equal GNP, as a measure of national output. Thus GNI is used as a proxy, since reliable data for GNP are not readily available for all countries considered. The World Bank series was complete for all countries except Saudi Arabia. No data filling was used in this case; the series for Saudi Arabia was shortened to accommodate the available information.

* Consumer Price Index (CPI)

CPI (2005=100) (FP.CPI.TOTL): Consumer price index reflects changes in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used. These data were complete.

Research Findings

Table 2 includes the calculations of the excess inflationary gap for Argentina to indicate how the Kumara Swamy Theorem is applied. The first panel provides the actual inflationary gap, which is the difference between the actual change in money supply and the change in real GNI. The second panel provides the permissible inflationary gap under the Kumara Swamy Theorem. The excess inflationary gap is the difference between actual inflationary gap and the permissible inflationary gap, which is provided in the final panel of the Table 2.

The results illustrate a relatively large variation in the actual inflationary gap for Argentina from year to year, while the permissible gap is constrained due to less abrupt changes in the real GNP, as measured by GNI. The excess inflationary gap exhibits an average of 9.75 per cent for these data, with extreme positive gaps in 2002, 2003 and 2012 and a large negative gap in 2008. The final year of the financial crisis in 2002 provides the largest excess due to the negative GNP growth estimate. Argentina's problems began in 1998 in response to crises in Russia and Brazil and worsened with the dot-com bubble crash, when foreign funds fled the country. Argentina is perhaps the least stable of the G-20 countries due to its recent crisis. This situation is well illustrated by the extreme swings in the excess inflationary gap. The rate of inflation for Argentina in the sample period averages 8.93 per cent, however, which means that the excess inflationary gap exceeded the rate of inflation defined as the change in CPI in only four of the thirteen years. For the remainder of the study, it should be noted that comparisons of the excess inflationary gaps with inflation rate changes gauge the significance of the annual results. Argentina has a long run average that is higher than the G-20 group average and the annual fluctuations can be extreme, but the swings are judged less significant when compared to its high inflation rate.

Group of Seven (G-7) Countries

Table 3 includes the annual excess inflationary gaps for the G-20 nations calculated as described previously. It is separated into three panels to simplify comparisons between countries. The first panel contains the G-7 countries, which have been holding economic summits since 1976. Russia is included with other developing nations known by the acronym 'BRICS' in the second panel to even out the number of countries in each panel and the corresponding figures that follow. The third panel contains the remaining nations, which form a rather diverse group of countries. This separation is the most convenient and allows more detailed comparisons within the sub-groups. Where comparisons between the groups are appropriate, this shall be conducted on an individual country basis. Panel 1 of Table 3 and Figure 1 allow comparisons between the original G-7 members.

All G-7 countries exhibit an extreme positive excess inflationary gap resulting from negative GNI growth in 2009, related to the financial crisis in that year. For most of these countries, the rise begins a year earlier providing combined excesses near 30 per cent (15 per cent annually over two years). Japan and France demonstrate the least effect. The more interesting result in this case arises from examining the rest of the G-20 nations. Brazil, South Africa, Australia, and Indonesia indicate negligible gap in 2009 that suggests some buffering of the crisis effect south of the equator. India and Argentina have increases in the excess inflationary gap to levels comparable to Japan and France, but at their inflation rates these may be considered insignificant increases. These six countries and China sustained positive GNI growth during 2009.

Several G-7 economies also indicate a spike in the excess inflationary gap early in this period. As noted in the previously cited studies, Canada's gap widened in 2001, corresponding to the dot-com bubble burst. Immediately after the circulation of the Euro as the de facto currency, Germany and France have positive excess inflationary gaps in 2003-2003, as described in Glew, Bauer, and Faseruk (2013). Japan was in its final years of a prolonged deflationary period in 200,2 and 2003 as described by Ito and Mishkin (2006) (8). Although quantitative easing by purchasing government bonds had begun in 2001, in the pace tripled when the monthly purchase level was raised by 1.2 trillion yen late in 2002. In 2003, the current account balance was raised from 10 to 35 trillion yen by the new governors at the Bank of Japan (8). The effect of quantitative easing is a large increase in the excess inflationary gap and this is also in evidence for the United States of America in 2011, as noted by Faseruk, Bauer, and Glew (2012).


Brazil, Russia, India, China, and South Africa (BRICS)

When the acronym for the emerging nations was coined in 2001, the members were Brazil, Russia, India, and China (BRIC). Table 1 illustrates that these nations all have large populations and their economies all demonstrated extremely rapid growth as markets became global in the new millennium. China has surpassed all but one of the G-7 countries to become the second largest economy in the world. Brazil now ranks seventh and both India and Russia are ahead of Canada. Together with the G-7, these economies are the eleven most affluent. South Africa has been added to the group due to its location and stature in the African continent and rapid economic growth in the last decade (9), which has slowed more recently. This country is included in the group as a matter of convention but note that it has clearly not yet reached the same standing as the original four members and the empirical results do bear this out. The second panel of Table 3 and Figure 2 indicate the excess inflationary gap results of the BRICS nations.



India demonstrates an average excess inflationary gap closer to zero than all nations in the G-7 and BRICS categories combined, also with the minimum variation around that mean result. Like developed countries, it exhibits a spike in 2009, the year of the financial crisis, but the effect is quite moderate. China stands out due to its constrained money supply relative to GNI, providing negative excess inflationary gaps in all years except 2009, when it spikes above both India and Brazil despite maintaining positive real GNI growth. Russia is similar to the other G-8 countries where real GNI growth is negative in the year of the financial crisis while Brazil is similar to the other BRICS nations experiencing only a reduction in income growth in that year. In both cases there is a significant increase in the excess inflationary gap.

Both Brazil and Russia suffered financial crises near the beginning of the testing period but both demonstrate large swings in the excess inflationary gap throughout the period. By moderating the money supply relative to the national income of the country, the Kumara Swamy Theorem of Inflationary Gap provides a sharper focus on the annual variation for these two nations. The results are comparable to those of the final seven members of the G-20. In fact, Brazil has recently slipped into a less auspicious sub-grouping of the G-20 known as the 'Fragile Five', to be described in more detail.

South Africa stands out in the group for two reasons. Its data provide no effect on the excess inflationary gap in the crisis year, similar to several other G-20 countries in the southern hemisphere. (9) Also, the time series begins with significant negative excess inflationary gaps in 2000 and 2001. This period corresponds to the country's shift to an inflation targeting monetary regime from a previous policy directed towards monetary growth. The guideline was to restrict inflation to a band between three and six percent, which was less than half the average level of inflation in the previous decade, based on adjustments in the 'repo rate', an interest rate at which government securities are repurchased from commercial banks by the South African Reserve Bank. Aron and Muellbauer (2007) (9) describe the policy change as more transparent and effective. Under the lens of the Kumara Swamy Theorem of Inflationary Gap, the drastic immediate effect of the policy is illustrated and the following period of relative stability is also depicted. South Africa is also included in the 'Fragile Five'.

Remaining G-20 Members

The final panel of Table 3 and Figure 3 include the results for the remaining seven individual countries participating in the G-20 summits: Argentina, Australia, Indonesia, Mexico, Saudi Arabia, South Korea, and Turkey". This is an extremely diverse group of nations at different stages of economic development.

The results for Argentina are included above to demonstrate the method of application of the Kumara Swamy Theorem of Inflationary Gap and these were volatile, but not outside the bounds demonstrated by other emerging members of the G-20. Australia is remarkable in the group for exhibiting the most stable profile in later years after a single spike in excess inflationary gap in 2002. Saudi Arabia provides the lower bound with negative excess inflationary gaps in eight of 12 years depicted, but this country suffered from extreme negative growth in real GNI during the financial crisis and thus has the highest excess inflationary gap in 2009. Like China, the effect of its trading partners translated into a significant effect and here the result is exacerbated by its position in the supply chain of the single commodity, oil. To lesser extents, Turkey, Mexico, and South Korea were all affected in that order in 2009. Argentina exhibits an effect slightly higher than its normal inflation in that year, much like Brazil, and Australia and Indonesia appear unaffected in 2009, similar to South Africa.

At the beginning of the time series, there are several significant positive excess inflationary gaps in this sub-group. Korea and Indonesia both experience rises in the excess inflationary gap in 2001, but these economies were both emerging from a period of crisis at the time. McCauley (2002) (10) indicates that both of these economies were following a monetary policy of inflation targeting but for Korea, deflation against the U.S. dollar was possible without the inflation constraint binding. Indonesia suffered a slight overshoot on its inflation target. Accordingly, the observed spikes may simply reflect realignments of foreign exchange rates for these economies post-Asian crisis. In 2002, Australia exhibits its largest value for the excess inflationary gap, which is an interesting result as its economy performed well in that year in comparison to the global economy. Australia was in a period of interest rate easing that began in 2001 in response to the observed weaknesses in the Asian markets, including Japan. This policy seems to have resulted in a prolonged rise in the excess inflationary gap resulting from a substantial increase in M money supply.

Turkey stands out due to numerous large excess inflationary gaps with the first group appearing with increasing magnitudes in the first three years of our time series. This period coincides with the Turkish financial crisis of 2001, given that negotiations with the International Monetary Fund (IMF) had actually commenced in 1999, but provided no solution to avoid the crisis. The peak in 2001 resulted from negative real GNI growth in the crisis year, at which point the country switched its foreign currency policy from a fixed to floating exchange rate as demanded by the IMF. The resulting large increase in money supply is reflected in the larger excess inflationary gap indicated in 2002. Kara (2006) (11) describes the 'implicit inflation targeting' approach adopted by the Central Bank of the Republic of Turkey (11) that led to rapid disinflation from 2002 to 2005. In 2005, a significant excess inflationary gap is noted where inflation was below the target for that year, so the constraint was no longer binding, much like Korea in 2001. The last spike for Turkey appears in the global crisis year of 2009, where real GNI growth was negative, but a strong rebound is witnessed in the following year due to a seemingly more stable economy. This country lies somewhere between an emerging economy and a developed nation according to the World Bank, I.M.F., and other global financial authorities. The Kumara Swamy Theorem of Inflationary Gap clearly indicates a decade of relative instability from 2001 to 2011.

Turkey and Indonesia join India, South Africa and Brazil of the BRICS nations to form a group of countries recently referred to as the 'Fragile Five' by Morgan Stanley. The analysis indicates stable performance for all members in the latter period of the current study, though excess inflationary gaps have risen slightly in 2012. The underlying concern with these emerging markets is their sizeable average inflation, which may be dependent on foreign direct investment. With the U.S. Federal Reserve anticipating the tapering of its domestic bond buying program, there could be a threat of flight of foreign capital that would necessitate further reforms in each of these five nations. Brazil, India, Indonesia, and Turkey are heading into uncertain election campaigns in 2014 and that may lessen their resolve to raise interest rates due to the anticipated slowing of economic growth. Of the five, Brazil, Turkey, and South Africa indicate the largest excess inflationary gaps in 2012, in that descending order.

Comparison with NAFTA Trading Union U.S.A., Canada, and Mexico

Faseruk, Bauer, and Glew (2012) found that the three countries of the North American Free Trade Agreement (NAFTA) adhered to the Kumara Swamy Theorem on Inflationary Gap over the long run, but indicated variability during shorter term economic cycles. All these countries are members of the G-20 nations and the time series were extended to include 2012, which turned out to be a relatively uneventful year. The larger members of the trading union continued to demonstrate less variability and a reduced excess inflationary gap on average. Similar results have been indicated in this study, based on reasonable groupings within the G-20. The sample period in this study lasts 13 years starting with the formal inauguration of the G-20 in 1999, which coincides with the adoption of the common Euro currency that affects the data for France, Germany, and Italy. This shortens the data reported in Faseruk, Bauer, and Glew (2012), possibly reducing its accuracy. The main result has not changed materially that the average U.S. excess inflationary gap now estimated at 2.79 per cent is less than that of Canada at 3.37 per cent and that of Mexico at 4.56 per cent.

Table 4 compares the G-20 countries that include NAFTA members with the results from European Union presented by Glew, Bauer, and Faseruk (2013). All countries are ranked using the measure of excess inflationary gap and identified by the major groups and sub-groupings. The NAFTA countries are near the top of the table with results just higher than the Scandinavian countries, relating to small changes in the money supply when compared to economic output, as measured by GNI. The established European Union members fall below the NAFTA countries as expected: per capita resource wealth is higher, public expenditure is lower, and unemployment is lower. The majority of the G-20 countries have higher excess inflationary gaps than the NAFTA members. As might be expected, Australia is the G-20 nation closest to Canada relative to excess inflationary gap though its average inflation over the period is higher. Brazil is found to be most similar to Mexico.

Comparison with the European Union Findings

Table 4 differs from a similar table in the European Union study at low measures of excess inflationary gap. At the top of the table, there are three G-20 countries with negative excess inflationary gaps. These are countries with potential for sovereign wealth funds as the growth in national income is outpacing the permissible growth in the money supply. China and Saudi Arabia join Norway that was included in the previous study of the EU, since all three manage sovereign wealth funds and South Africa has only just changed its plans to operate a fund due to the recent precipitous drop in the price of metals. Also noteworthy are Indonesia and India, whose average excess inflationary gaps are very close to zero as predicted by the Kumara Swamy Theorem. The G-7 results fall in with the established countries in the European Union extremely well with average excess gaps below seven per cent.

The recent EU members that have not adopted the Euro follow in succession with average excess inflationary gaps less than 10 per cent but above the average rates of inflation. Finally, the recent EU members that also joined the Eurozone are included alongside the emerging G-20 countries that have suffered through crises. Argentina, Russia, South Korea, and Turkey experienced financial difficulties near the beginning of our time series. The Eurozone countries of Ireland and Cyprus have both suffered from financial crisis that was worsened by the adoption of the Euro. Within the G-20, South Korea and Turkey entered into crisis associated with fixed (pegged) exchange rates and these nations appear low in the table alongside recent EU members that have adopted the Euro as currency. With such economic unrest, agreement with the Kumara Swamy Theorem of Inflationary Gap cannot be expected.


The results of this analysis of the Kumara Swamy Theorem of Inflationary Gap with the 19 countries that are members of the Group of Twenty (G-20) nations have consolidated past findings and provided several new insights. The NAFTA countries studied by Faseruk, Bauer, and Glew (2012) are all members of the G-20 and their results remain consistent with the addition of the 2012 data even after data truncation in the early years. The G-20 nations include the four largest members of the EU, which had previously been empirically tested by Glew, Bauer, and Faseruk (2013). These results are unchanged with an additional year of data.

Moreover, results from the geographically diverse G-20 align well with the remaining EU countries that are generally smaller in size. Year-to-year variations have been successfully explained and the long run average results meet the spirit of the theorem.

Within the G-20, China, Saudi Arabia, and South Africa were able to operate with negative excess inflationary gaps on average and these countries join Norway that was included in the previous study of the EU. Three of the four nations manage sovereign wealth funds, with South Africa recently rescinding its plans to operate a fund due to the abrupt drop in the metal prices. The expanded group of countries now includes seven nations that follow the theorem to the letter with excess inflationary gaps less than three per cent and inflation rates approaching that same level. Canada, Australia, Mexico and Brazil all demonstrate slightly higher excess inflationary gaps but when their inflation rates are considered, these gaps become less significant. As a long run estimate for assessing economic health of developed countries, adherence to the Kumara Swamy Theorem of Inflationary Gap seems a reasonable measure based on the larger dataset including G-20 and EU nations.

Finally, the countries in the G-20 that have suffered financial crises were quickly identified by large spikes in the excess inflationary gap. South Korea and Turkey fixed their exchange rates in the past and switched to inflation-targeting with through the adoption of floating rates. These G-20 members align with recent entrants to the Eurozone, such as Ireland and Cyprus, which exhibit extremely large excess inflationary gaps far surpassing average inflation rates. Thus, the Kumara Swamy Theorem of Inflationary Gap provides a sharp focus to identify economic hardship as well as health.

The authors own full responsibility for the contents of the paper.


(1.) a) Swamy, M.R.K., A Financial Management Analysis of the Nigerian Economic Situation, Nigerian Journal of Financial Management, (December 1982)

b) Swamy, M. R. K., Focus on Functional Relationship between Technology Gap and Poverty Gap: Financial Management Considerations for Developing Countries, Journal of Financial Management and Analysis, (2: 1988)

(2.) a) Swamy, M. R. K., Financial Management Analysis of Inflationary Gap and Agricultural Loan Administration: Empirical Evidence from a Developing Country, Journal of Financial Management and Analysis (2: 1989)

b) Swamy, M.R.K., A Financial Analysis of Prudent Management of Investment Cycle and Inflationary Gap: Empirical Evidence, Journal of Financial Management and Analysis (2: 1993)

c) Swamy, M. R. K., Empirical Testing of the Kumara Swamy Theorem on Inflationary Gap: Nigerian Economy in Perspective, Journal of Financial Management and Analysis (1: 2009)

(3.) Lazaridis, I. T. and E. S. Livanis, Testing the Kumara Swamy Theorem of Inflationary Gap in the Cypriot and Greek Economies--Research Findings, Journal of Financial Management and Analysis (1:2010)

(4.) Bauer, L., and A. Faseruk, Testing the Kumara Swamy Theorem of Inflationary Gap: Empirical Evidence from Canada, Journal of Financial Management and Analysis, (1: 2012)

(5.) Faseruk, A., L. Bauer and I Glew, The NAFTA Evidence on Testing the Kumara Swamy Theorem of Inflationary Gap, Journal of Financial Management and Analysis, (2: 2012).

(6.) Glew, I., L. Bauer, and A. Faseruk, Evidence from the European Union on Testing the Kumara Swamy Theorem of Inflationary Gap, Journal of Financial Management and Analysis, (2: 2013)

(7.) a) Fama, E., Stock Returns, Real Activity, Inflation and Money, American Economic Review, (5: 1981) b) Faseruk, A., R. Roubi and R. Barth, Does Inflation Influence Equity Risk Premiums? A Methodological Analysis, Journal of Financial Management and Analysis, (2: 1993)

(8.) Ito, T. and F. S. Mishkin, Chapter 4: Two Decades of Japanese Monetary Policy and the Deflation Problem, Monetary Policy Under Very Low Inflation in the Pacific Rim, NBER-EASE (chapter 4 : 2006)

(9.) Aron, J., and J. Muellbauer, Review of Monetary Policy in South Africa since 1994, Journal of African Economies, (16: 2007)

(10.) McCauley, R. N., Setting Monetary Policy in East Asia: Goals, Developments and Intuitions, Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, Number Occ 33, (June 2002)

(11.) Kara, A. H., Turkish Experience with Implicit Inflation Targeting, Central Bank of the Republic of Turkey, Research and Monetary Policy Working Paper #06/03 (2006)


Faculty Member

Professor ALEX FASERUK, Ph. D.


Associate Professor and Associate Dean

Faculty of Business Administration Memorial University St. John's, NL, CANADA A1B 3X5

Country               G-8  BRICS  Gross National   Population   GNI per
GNI Rank                               Income *     (million)   capita
                                  (US $ million)       [Rank]      ($)

Argentina [18]                          464,304     41.1 [16]   11,297
Australia [12]                        1,346,605     22.7 [19]   59,322
Brazil [7]                   X        2,311,146     198.7 [5]   11,631
Canada [11]            X              1,777,860     34.9 [17]   50,942
China [2]                    X        7,731,297   1,350.7 [1]    5,724
France [5]             X              2,742,891     65.7 [11]   41,749
Germany [4]            X              3,624,635      81.9 [9]   44,257
India [9]                    X        1,955,016   1,236.7 [2]    1,581
Indonesia [15]                          843,993     246.9 [4]    3,418
Italy [8]              X              2,062,541     60.9 [13]   33,868
Japan [3]              X              6,107,136     127.6 [7]   47,862
Mexico [13]                           1,165,050     120.8 [8]    9,644
Russia [10]            X     X        1,822,654     143.5 [6]   12,701
Saudi Arabia [17] **                     588,934    28.3 [18]   20,810
South Africa [19]            X          389,765     51.2 [14]    7,613
South Korea [14]                      1,133,791     50.0 [15]   22,676
Turkey [16]                             801,097     74.0 [10]   10,826
U.K. [6]               X              2,444,857     63.2 [12]   38,684
U.S.A. [1]             X             16,430,393     313.9 [3]   52,342


Indicator                       2000     2001     2002    2003    2004

Actual Money Supply             -9.1    -20.1     78.4    51.9    30.2
Real GNI                         1.2     -4.7    -11.7     7.2    14.4
Actual Inflationary Gap        -10.3    -15.4     90.1    44.7    15.8
Permissible Money Supply         2.4     -9.4    -23.4    14.4    28.8
Real GNP                         1.2     -4.7    -11.7     7.2    14.4
Permissible Inflationary Gap     1.2     -4.7    -11.7     7.2    14.4
Excess Inflationary Gap        -11.5    -10.7      102    37.4     1.4

Indicator                      ~   2007     2008    2009    2010

Actual Money Supply            ~   35.5      5.2    17.3    31.8
Real GNI                       ~   14.4     16.7     3.5    14.8
Actual Inflationary Gap        ~   21.1    -11.5    13.8    17.0
Permissible Money Supply       ~   28.8     33.4     7.0    29.6
Real GNP                       ~   14.4     16.7     3.5    14.8
Permissible Inflationary Gap   ~   14.4     16.7     3.5    14.8
Excess Inflationary Gap        ~    6.7    -28.2    10.3     2.2

Indicator                      2011    2012

Actual Money Supply            24.6    49.3
Real GNI                       16.6     7.2
Actual Inflationary Gap         8.0    42.1
Permissible Money Supply       33.2    14.4
Real GNP                       16.6     7.2
Permissible Inflationary Gap   16.6     7.2
Excess Inflationary Gap        -8.6     34.


G-7                    2000     2001     2002     2003     2004

Canada                 -2.7     11.9      1.9      0.6     -0.7
France                  0.5      2.3      7.9     15.2      1.1
Germany                 0.7      3.1     13.3      8.5      0.7
Italy                   0.3      1.7      5.7      6.2      2.4
Japan                  -0.1      3.4     22.9     18.2      1.8
U.K.                    4.5      4.8     -2.2     -0.6      3.4
U.S.A.                -12.7     -0.5     -1.2      3.4     -1.7


Brazil                 11.1      6.8     19.8      0.6      3.5
Russia                 13.8     32.1     18.1     32.9     -4.0
India                   3.9      0.7      5.6      0.3      0.4
China                  -5.7     -5.8     -7.2     -5.9    -13.3
South Africa          -12.7    -41.8      0.5      6.4     -9.1


Argentina             -11.5    -10.8      102     37.4      1.4
Australia               4.7      9.0     22.4      3.6     -3.0
Indonesia              -2.6     35.0     10.0    -12.8      0.7
Mexico                 -4.3     31.4      9.6    -16.2     -8.3
Saudi Arabia          -27.5     13.1      6.8    -15.0    -24.8
South Korea           -18.4      356     -4.3      2.8     -7.5
Turkey                 55.4     84.5      151     14.8      1.0

G-7                    2005     2006     2007     2008     2009

Canada                 -2.2      1.4       1.1     8.2     23.4
France                  6.7      0.7      -0.2     1.5     11.2
Germany                11.0     -1.2     -0.5      9.2     24.1
Italy                   6.5      3.0     -0.3     13.7     17.5
Japan                   3.8     -1.5     -2.9      6.2     11.9
U.K.                    5.5      6.6      2.5     15.7     13.8
U.S.A.                 -7.1     -8.8     -1.1      8.0     24.7


Brazil                  5.8      7.8     16.1    -19.0      7.6
Russia                 11.1     19.0      8.0    -17.1     42.3
India                   0.4      0.2     -4.1      3.5     10.2
China                 -14.4    -13.8    -14.6    -14.7     15.1
South Africa            5.2      0.3      8.7      3.6     -0.7


Argentina               5.0    -14.1      6.7    -28.3     10.4
Australia               3.1      2.9      7.5      4.9     -6.9
Indonesia              -5.9      7.2      3.5    -23.9     -3.8
Mexico                  9.5     -1.0      3.1      5.6     23.5
Saudi Arabia          -47.4    -15.5     12.2    -17.2     65.0
South Korea            10.1      3.5    -13.6      2.2     16.4
Turkey                 61.0     -1.0      2.2      4.5     35.4

G-7                    2010     2011     2012

Canada                  0.7      3.7     -3.5
France                  4.6      4.1      2.6
Germany                 1.0      2.1     11.5
Italy                  -2.0      1.1      7.7
Japan                  -2.6      9.6      0.1
U.K.                    4.3      1.0      6.5
U.S.A.                 -4.2     32.7      4.6


Brazil                 -8.8     -4.4     11.7
Russia                 12.7     -4.5     -1.8
India                   3.4     -5.1      2.6
China                  -6.3    -15.4     -7.2
South Africa           -0.6      0.6      7.1


Argentina               2.3     -8.5     34.9
Australia               8.4     -8.2      1.3
Indonesia              -4.1     -0.8      4.1
Mexico                  3.4     -2.8      5.8
Saudi Arabia          -11.6    -18.8
South Korea            -3.5      0.6      4.1
Turkey                  8.6     -7.1      7.6


Range  Country         Average      Average   Group       Sub-Group
                        Excess     Inflation
                     Inflationary     (%)
                       Gap (%)

<0     China            -8.39        2.29     G-20
       Saudi Arabia     -6.72        2.69     G-20
       South Africa     -2.50        5.86     G-20        BRICS
       Norway           -2.16        2.05     EU          Scandinavia

0-3    Indonesia         0.52        7.64     G-20
       India             1.71        6.60     G-20        BRICS
       Greece            2.29        3.30     EU          PIGS
       Sweden            2.36        1.58     EU          Scandinavia
       Finland           2.59        1.85     EU/Euro     Scandinavia
       U.S.A.            2.79        2.51     G-20/NAFTA  G-7
       Portugal          2.80        2.59     EU          PIGS

3-5    Netherlands       3.17        2.07     EU          Established
       Canada            3.37        2.10     G-20/NAFTA  G-7
       Belgium           3.54        2.24     EU          Established
       Australia         3.83        3.05     G-20
       France            4.49        1.77     G-20/EU     G-7
       Brazil            4.50        6.61     G-20        BRICS
       Mexico            4.56        4.91     G-20/NAFTA
       Austria           4.75        2.08     EU          Established
       Italy             4.88        2.31     G-20/NAFTA  G-7

5-7    U.K.              5.07        2.24     G-20/EU     G-7
       Luxembourg        5.21        2.42     EU          Established
       Japan             5.44        -0.27    G-20        G-7
       Germany           6.42        1.62     G-20/EU     G-7

7-10   Spain             7.18        2.89     EU          PIGS
       Hungary           7.38        5.84     EU          Recent,
       Latvia            7.60        5.15     EU          Recent,
       Lithuania         7.67        2.98     EU          Recent,
       Poland            8.92        3.54     EU          Recent,
       Bulgaria          8.95        6.20     EU          Recent,
       Argentina         9.75        8.93     G-20
       Slovakia          9.97        4.99     EU          Recent, Euro

10-20  Estonia          12.28        4.26     EU          Recent, Euro
       Russia           12.51        12.31    G-20        G-8, BRICS
       Ireland          14.62        2.77     EU          PIGS
       Iceland          17.86        5.98     EU

>20    Slovenia         22.28        4.39     EU          Recent, Euro
       South Korea      26.81        3.10     G-20
       Turkey           32.14        20.02    G-20
       Cyprus           39.35        2.79     EU          Recent, Euro
       Malta            45.01        2.43     EU          Recent, Euro
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Author:Glew, Ian; Faseruk, Alex; Bauer, Lawrence
Publication:Journal of Financial Management & Analysis
Geographic Code:1USA
Date:Jul 1, 2013
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