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Long Memory Processes and Chronic Inflation

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  • Fabio Scacciavillani
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    Abstract

    This paper is an empirical study of the links between monetary variables and inflation based on Cagan’s equation and its rational expectations solution, when the forcing variable is a fractionally integrated process. As demonstrated by Hamilton and Whiteman, the existence of bubbles and other extraneous influences can be detected only by verifying the difference in the order of integration between the monetary base and the price level series. This paper shows that a fractionally differenced model overcomes Evans’ critique of this test and that chronic inflation is essentially a monetary phenomenon caused by fiscal imbalance.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=1052
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 94/2.

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    Length: 66
    Date of creation: 01 Jan 1994
    Date of revision:
    Handle: RePEc:imf:imfwpa:94/2

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    Cited by:
    1. Bohl, Martin T., 2003. "Periodically collapsing bubbles in the US stock market?," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 385-397.
    2. Taner Yigit, 2007. "Inflation Targeting : An Indirect Approach to Assess the Direct Impact," Departmental Working Papers 0706, Bilkent University, Department of Economics.

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