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A Modified P*-Model of Inflation Based on M1

  • Atta-Mensah, J

This paper examines the performance of M1 in an indicator model of inflation over time horizons as long as 16 quarters into the future. The central conclusion of the paper is that, in addtion to the output gap, the cumulative growth of M1 and the deviations of M1 from its long-run path provide "distant-early-warning" information about the future path of inflation.

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Paper provided by Bank of Canada in its series Working Papers with number 96-15.

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Length: 24 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:bca:bocawp:96-15
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  1. Becsi, Zsolt & Duca, John V., 1994. "Adding bond funds to M2 in the P-Star model of inflation," Economics Letters, Elsevier, vol. 46(2), pages 143-147, October.
  2. Pecchenino, R. A. & Rasche, Robert H., 1990. "P* type models: Evaluation and forecasts," International Journal of Forecasting, Elsevier, vol. 6(3), pages 421-440, October.
  3. Laidler, D., 1988. "Taking Money Seriously," UWO Department of Economics Working Papers 8804, University of Western Ontario, Department of Economics.
  4. Armour, J. & Atta-Mensah, J. & Engert, W. & Hendry, S., 1996. "A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria," Working Papers 96-5, Bank of Canada.
  5. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  6. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics 9511001, EconWPA.
  7. Joseph Atta-Mensah, 1996. "The Empirical Performance of Alternative Monetary and Liquidity Aggregates," Macroeconomics 9601001, EconWPA.
  8. Milbourne, Ross D, 1987. "Re-examining the Buffer-Stock Model of Money," Economic Journal, Royal Economic Society, vol. 97(388a), pages 130-42, Supplemen.
  9. Liam P. Ebrill & Steven M. Fries, 1991. "Broad Money Growth and Inflation in the United States," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 736-750, December.
  10. Jeffrey J. Hallman & Richard D. Porter & David H. Small, 1989. "M2 per unit of potential GNP as an anchor for the price level," Staff Studies 157, Board of Governors of the Federal Reserve System (U.S.).
  11. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
  12. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 671-90, August.
  13. Kenneth N. Kuttner, 1990. "Inflation and the growth rate of money," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 2-11.
  14. John A. Tatom, 1990. "The P-star approach to the link between money and prices," Working Papers 1990-008, Federal Reserve Bank of St. Louis.
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