Monetary aggregates and inflation forecasts in the United States, 1954-1992 : a cointegration approach /
Development of an accurate inflation forecasting model has
| Main Author: | |
|---|---|
| Format: | Thesis Book |
| Language: | English |
| Published: |
[Place of publication not identified] :
[publisher not identified] ;
1994.
|
| Subjects: | |
| Online Access: | http://proxy.library.tamu.edu/login?url=http://proquest.umi.com/pqdweb?did=741944601&sid=1&Fmt=2&clientId=2945&RQT=309&VName=PQD |
| Summary: | Development of an accurate inflation forecasting model has long been of great interest to economists. As an effort to accomplish this task, Hallman, Porter and Small (1991) propose the so called P-Star model in which inflation is driven by discrepancies between the long run equilibrium price level (P-Star) and the actual price level. To construct the P-Star, they look at M2, but neither the monetary base (MB) nor Ml because the velocities of these monetary aggregates appear nonstationary. This dissertation presents strong evidence that a stable long-run cointegration relationship between real MB (or Ml) and real income exists when the interest rate is considered. It is also shown that the real income elasticity of demand for real MB (or Ml) is unity, implying the existence of a stable long-run equilibrium velocity function. These results are consistent with the recent cointegration tests by Hoffman and Rasche (1 99 1) and Dickey, Jansen and Thornton (I 99 1). Based on this evidence, we consider the usefulness of MB and Ml as a leading indicator of inflation in the context of the P-Star model. A difference of our models from the original P-Star model is that our models explicitly incorporate the error correction component. The results in this dissertation show that our real time forecasting models using MB and MI outperform the real time P-Star model using M2. Between MB and MI, MB performs slightly better. Including import prices that are expected to influence the short-term fluctuation of inflation, our model using MB surprisingly outperforms even the non-real time P-Star model, not to mention of the real time PStar model. |
|---|---|
| Item Description: | Vita. "Major Subject: Economics". In title, numerals are used. |
| Physical Description: | xiii, 177 leaves : illustrations ; 28 cm. Issued also on microfiche from University Microfilms Inc. |
| Bibliography: | Includes bibliographical references. |