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A Modified P*-Model of Inflation Based on M1

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  • Atta-Mensah, J

Abstract

This paper examines the performance of M1 in an indicator model of inflation over time horizons as long as 16 quarters into the future. The central conclusion of the paper is that, in addtion to the output gap, the cumulative growth of M1 and the deviations of M1 from its long-run path provide "distant-early-warning" information about the future path of inflation.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 96-15.

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Length: 24 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:bca:bocawp:96-15

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Keywords: ECONOMIC MODELS; INFLATION;

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References

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  1. Pecchenino, R. A. & Rasche, Robert H., 1990. "P* type models: Evaluation and forecasts," International Journal of Forecasting, Elsevier, Elsevier, vol. 6(3), pages 421-440, October.
  2. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(5), pages 829-53, October.
  3. David E. Laidler, 1988. "Taking Money Seriously," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 687-713, November.
  4. Armour, J. & Atta-Mensah, J. & Engert, W. & Hendry, S., 1996. "A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria," Working Papers, Bank of Canada 96-5, Bank of Canada.
  5. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics, EconWPA 9511001, EconWPA.
  6. John A. Tatom, 1990. "The P-star approach to the link between money and prices," Working Papers, Federal Reserve Bank of St. Louis 1990-008, Federal Reserve Bank of St. Louis.
  7. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(4), pages 671-90, August.
  8. Milbourne, Ross D, 1987. "Re-examining the Buffer-Stock Model of Money," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(388a), pages 130-42, Supplemen.
  9. Joseph Atta-Mensah, 1996. "The Empirical Performance of Alternative Monetary and Liquidity Aggregates," Macroeconomics, EconWPA 9601001, EconWPA.
  10. Jeffrey J. Hallman & Richard D. Porter & David H. Small, 1989. "M2 per unit of potential GNP as an anchor for the price level," Staff Studies 157, Board of Governors of the Federal Reserve System (U.S.).
  11. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
  12. Liam P. Ebrill & Steven M. Fries, 1991. "Broad Money Growth and Inflation in the United States," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 736-750, December.
  13. Becsi, Zsolt & Duca, John V., 1994. "Adding bond funds to M2 in the P-Star model of inflation," Economics Letters, Elsevier, vol. 46(2), pages 143-147, October.
  14. Kenneth N. Kuttner, 1990. "Inflation and the growth rate of money," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 2-11.
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Citations

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Cited by:
  1. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports, Bank of Canada 89, Bank of Canada.
  2. Tödter, Karl-Heinz, 2002. "Monetary indicators and policy rules in the P-star model," Discussion Paper Series 1: Economic Studies 2002,18, Deutsche Bundesbank, Research Centre.
  3. Ahmad Tashkini, 2006. "The P-star Model in Iran (1960-2005)," Iranian Economic Review, Economics faculty of Tehran university, vol. 11(1), pages 115-122, winter.
  4. Martha Misas Arango & Enrique López Enciso & Luis Fernando Melo velandia, 1999. "La Inflación Desde Una Perspectiva Monetaria : Un Modelo P* Para Colombia," BORRADORES DE ECONOMIA 003028, BANCO DE LA REPÚBLICA.

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