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Some Long-Run Correlations of Inflation in Developed Countries

Author

Listed:
  • Kenneth D. West

    (University of Wisconsin)

  • Tu Cao

    (University of Wisconsin)

Abstract

Using 100+years of data from 18 developed countries, we use a frequency domain technique to compute “long-run” correlations between inflation on the one hand and money growth and nominal interest rates on the other. The estimated long-run correlations are almost always positive. Their magnitude is relatively substantial for money growth, more modest for interest rates. We conclude that some traditional propositions about monetary neutrality are broadly consistent with the data.

Suggested Citation

  • Kenneth D. West & Tu Cao, 2022. "Some Long-Run Correlations of Inflation in Developed Countries," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 45(89), pages 1-23.
    • Handle: RePEc:pcp:pucrev:y:2022:i:89:p:1-23
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    File URL: https://revistas.pucp.edu.pe/index.php/economia/article/view/25646/24149
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    More about this item

    Keywords

    Low frequency; Long-run neutrality; Fisher effect; Fractional integration;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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