Inflation, Money Growth, and I(2) Analysis
AbstractThe 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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Bibliographic InfoPaper 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:
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cointegrated VAR; price homogeneity; Cagan model; hyper inflation;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-02 (All new papers)
- NEP-CBA-2005-01-02 (Central Banking)
- NEP-ECM-2005-01-02 (Econometrics)
- NEP-MAC-2005-01-02 (Macroeconomics)
- NEP-MON-2005-01-02 (Monetary Economics)
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