The paper discusses the dynamics of inflation and money growth in a stochastic framework, allowing for double unit roots in the nominal variables. It gives some examples of typical I(2) ’symptoms’ in empirical I(1) models and provides both a nontechnical and a technical discussion of the basic differences between the I(1) and the I(2) model. The notion of long-run and medium-run price homogeneity is discussed in terms of testable restrictions on the I(2) model. The Brazilian high inflation period of 1977:1-1985:5 illustrates the applicability of the I(2) model and its usefulness to address questions related to inflation dynamics.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
04-31.
Length: 35 pages Date of creation: Dec 2004 Date of revision: Handle: RePEc:kud:kuiedp:0431
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