The U.S. Excess Money Growth and Inflation Relation in the Long-Run: A Nonlinear Analysis
AbstractThis paper specifies, estimates, and evaluates the relation between inflation rate and excess money growth, defined as the difference between money supply growth and real GDP growth, using a smooth transition regression model and U.S. data. The results indicate that the relation is a nonlinear one as supported by the linearity tests. Although deterministic extrapolation exercises indicate that both the linear and nonlinear models are stable, the nonlinear model is favored by several misspecification tests. Deterministic extrapolation exercises also indicate that an increase in excess money supply has positive effect on the long-run inflation rate but the effect is not one-to-one even in high-inflation regime.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 23780.
Date of creation: 27 Apr 2009
Date of revision:
Inflation; Excess Money Growth; Smooth Transition Regression;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Corradi, Valentina & Swanson, Norman R., 2002.
"A consistent test for nonlinear out of sample predictive accuracy,"
Journal of Econometrics,
Elsevier, vol. 110(2), pages 353-381, October.
- Corradi, V. & Swanson, N.R., 2000. "A Consistent Test for Nonlinear Out of Sample Predictive Accuracy," Discussion Papers 0012, Exeter University, Department of Economics.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2008.
"Monetary factors and inflation in Japan,"
Journal of the Japanese and International Economies,
Elsevier, vol. 22(3), pages 343-363, September.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2008. "Monetary Factors and Inflation in Japan," CEPR Discussion Papers 6650, C.E.P.R. Discussion Papers.
- Katrin Assenmacher-Wesche & Stefan Gerlach & Toshitaka Sekine, 2007. "Monetary Factors and Inflation in Japan," Working Papers 2007-13, Swiss National Bank.
- Michael, Panos & Nobay, A Robert & Peel, David A, 1997.
"Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation,"
Journal of Political Economy,
University of Chicago Press, vol. 105(4), pages 862-79, August.
- Tom Doan, . "RATS programs to replicate Michael-Nobay-Peel ESTAR models," Statistical Software Components RTZ00113, Boston College Department of Economics.
- Hansen, Bruce E, 1996.
"Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis,"
Econometric Society, vol. 64(2), pages 413-30, March.
- Tom Doan, . "RATS programs to replicate Hansen's threshold estimation and testing results," Statistical Software Components RTZ00091, Boston College Department of Economics.
- Tom Doan, . "TAR: RATS procedure to estimate a threshold autoregression, tests for threshold effect," Statistical Software Components RTS00209, Boston College Department of Economics.
- Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
- Nektarios Aslanidis, 2002. "Smooth Transition Regression Models in UK Stock Returns," Working Papers 0201, University of Crete, Department of Economics.
- Andros Gregoriou & Alexandros Kontonikas, 2005. "Modeling The Non-Linear Behaviour of Inflation Deviations From The Target," Working Papers 2005_12, Business School - Economics, University of Glasgow.
- Costas Milas, 2007.
"Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model,"
Keele Economics Research Papers
KERP 2007/07, Centre for Economic Research, Keele University.
- Costas Milas, 2009. "Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 168-182, January.
- Costas Milas, 2007. "Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model," Working Paper Series 25-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
- Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
- Sylvia Kaufmann & Peter Kugler, 2008.
"Does Money Matter For Inflation In The Euro Area?,"
Contemporary Economic Policy,
Western Economic Association International, vol. 26(4), pages 590-606, October.
- Sylvia Kaufmann & Peter Kugler, 2005. "Does Money Matter for Inflation in the Euro Area?," Working papers 2005/09, Faculty of Business and Economics - University of Basel.
- Peter Kugler & Sylvia Kaufmann, 2006. "Does Money Matter for Inflation in the Euro Area?," Working Papers 103, Oesterreichische Nationalbank (Austrian Central Bank).
- Anna Persson & Timo Teräsvirta, 2003.
"The net barter terms of trade: A smooth transition approach,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 8(1), pages 81-97.
- Persson, Anna & Teräsvirta, Timo, 1999. "The Net Barter Terms Of Trade : A Smooth Transition Approach," Working Paper Series in Economics and Finance 335, Stockholm School of Economics.
- Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-43, April.
- De Grauwe, Paul & Polan, Magdalena, 2005. "Is inflation always and everywhere a monetary phenomenon?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101180, Katholieke Universiteit Leuven.
- Hansen, Bruce E, 1999.
" Testing for Linearity,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 13(5), pages 551-76, December.
- Barbara Roffia & Andrea Zaghini, 2007.
"Excess money growth and inflation dynamics,"
Working Paper Series
749, European Central Bank.
- W.A. Bruinshoofd & B. Candelon, 2004.
"Nonlinear monetary policy in europe: fact or myth?,"
WO Research Memoranda (discontinued)
758, Netherlands Central Bank, Research Department.
- Bruinshoofd, Allard & Candelon, Bertrand, 2005. "Nonlinear monetary policy in Europe: fact or myth?," Economics Letters, Elsevier, vol. 86(3), pages 399-403, March.
- Bruinshoofd, Allard & Candelon, Bertrand, 2005. "Nonlinear monetary policy in Europe: fact or myth?," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19699, Maastricht University.
- Sylvia Kaufmann, 2007. "Capturing the Link between M3 Growth and Inflation in the Euro Area – An Econometric Model to Produce Conditional Inflation Forecasts," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 93-108, August.
- Luis Eduardo Arango & Andrés González, 1998.
"Some Evidence Of Smooth Transition Nonlinearity In Colombian Inflation,"
BORRADORES DE ECONOMIA
003515, BANCO DE LA REPÚBLICA.
- Luis Arango & Andres Gonzalez, 2001. "Some evidence of smooth transition nonlinearity in Colombian inflation," Applied Economics, Taylor and Francis Journals, vol. 33(2), pages 155-162.
- Luis Eduardo Arango & Andrés González, . "Some Evidence of Smooth Transition Nonlinearity in Colombian Inflation," Borradores de Economia 105, Banco de la Republica de Colombia.
- Bachmeier, Lance & Leelahanon, Sittisak & Li, Qi, 2007. "Money Growth And Inflation In The United States," Macroeconomic Dynamics, Cambridge University Press, vol. 11(01), pages 113-127, February.
- Bruce E. Hansen, 1997.
"Inference in TAR Models,"
Studies in Nonlinear Dynamics & Econometrics,
De Gruyter, vol. 2(1), pages 1.
- Tom Doan, . "THRESHTEST: RATS procedure to perform Hansen's Test for Threshold Break," Statistical Software Components RTS00210, Boston College Department of Economics.
- Aslanidis, Nektarios & Denise R. Osborn & Marianne Sensier, 2002. "Smooth Transition Regression Models in UK Stock Returns," Royal Economic Society Annual Conference 2002 11, Royal Economic Society.
- Jose De Gregorio, 2004. "Rapid Growth Of Monetary Aggregates And Inflation: The International Evidence," Working Papers Central Bank of Chile 256, Central Bank of Chile.
- Sensier, Marianne & Osborn, Denise R & Ocal, Nadir, 2002.
" Asymmetric Interest Rate Effects for the UK Real Economy,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 64(4), pages 315-39, September.
- M Sensier & D R Osborn & N Öcal, 2002. "Asymmetric Interest Rate Effects for the UK Real Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 10, Economics, The Univeristy of Manchester.
- Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998.
"Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era,"
Boston College Working Papers in Economics
404., Boston College Department of Economics, revised 16 Nov 1999.
- Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 379-399, June.
- Hansen, Bruce E., 1992.
"Testing for parameter instability in linear models,"
Journal of Policy Modeling,
Elsevier, vol. 14(4), pages 517-533, August.
- Tom Doan, . "STABTEST: RATS procedure to perform Hansen's stability test for OLS," Statistical Software Components RTS00199, Boston College Department of Economics.
- Siklos, P.L., 1991. "The Money Growth - Inflation Relationship Under Hyperinflation: An Illustration from Hungary's Postwar Experience," Working Papers 91139, Wilfrid Laurier University, Department of Economics.
- Thoma, Mark A, 1994. "The Effects of Money Growth on Inflation and Interest Rates across Spectral Frequency Bands," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 218-31, May.
- Nikolic, Milan, 2000. "Money Growth-Inflation Relationship in Postcommunist Russia," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 108-133, March.
- repec:ebl:ecbull:v:5:y:2005:i:8:p:1-13 is not listed on IDEAS
- Gunnar Bårdsen & Stan Hurn & Zoë McHugh, 2002. "A smooth-transition model of the Australian unemployment rate," Working Paper Series 1002, Department of Economics, Norwegian University of Science and Technology, revised 01 Jul 2003.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Gerald P. Dwyer, Jr. & R.W. Hafer, 1999. "Are money growth and inflation still related?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 32-43.
- Paul De Grauwe & Magdalena Polan, 2005. "Is Inflation Always and Everywhere a Monetary Phenomenon?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 239-259, 06.
- Neumann, Manfred J. M. & Greiber, Claus, 2004. "Inflation and core money growth in the euro area," Discussion Paper Series 1: Economic Studies 2004,36, Deutsche Bundesbank, Research Centre.
- Gary Shelley & Frederick Wallace, 2005. "The relation between U.S. money growth and inflation: evidence from a band-pass filter," Economics Bulletin, AccessEcon, vol. 5(8), pages 1-13.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.