Inflation and monetary dynamics in the USA: a quantity-theory approach

Abstract

Nutzungsbedingungen AbstractIn this paper we investigate the long-run link between inflation and money growth in the US since 1960. A measure of the long-run inflation trend is constructed, which bears the interpreation of "monetary" inflation rate and is directly related to the excess nominal money growth process (money growth less output growth) as postulated by the quantity theory. Consistent with the memory characteristics of the series, their fractional integration and cointegration properties are taken into account in empirical modelling. The proposed measure is then compared with several existing measures of "core inflation", aimed at capturing long-run inflation dynamics but unrelated to money growth. The "monetary" long-run inflation rate performs well in out-of-sample forecasting exercises especially over a two-to three-year horizon, yielding valuable information to monetary policymakers.

Inflation Determinants - Milton Friedman’s Theory and the Evidence from Ghana, 1965-2012 (Using ARDL Framework)

“…Akinboade et al (2004) with data on Nigeria, and Drevall andNdung'u (2001) Drewall andNdung'u (2001) with data on Kenya, also got similar findings from their studies. Morana and Bagliano (2007) studies on USA, also corroborated this findings.…”

“…Drevall and Ndung'u (2001) used data on M1&M2 from Kenya between, 1974 -1996 and concluded that the relation that one can conclude exists between these variables is only in the short run, and there is no significant relationship in the long run; Simwaka, Ligoya, Kabango, and Chikonda (2012) did their study on inflation and M2 in Malawi using Monthly data from 1995 -2007 and came to the conclusion that there exists a Positive relationship between these variables. Morana and Bagliano (2007) based their study on M1, M2, and M3 in the USA from 1959 -2003, the study established a Positive long run relationship among variables used for their estimation; Kabundi (2012) used M3 on Ugandan Monthly monetary data from 1991-2011 and was able to establish a Positive and significant relationship between inflation and M3. Akinboade et al (2004) also based his studies on inflation and M1 & M2 in Nigeria using time series data between 1986 -2008 and found a Positive and significant relationship between these series; Zhang (2012) conducted a study also using a time series data on M2 in China from 1980 -2010 and also concluded on a Positive relationship between the series .…”

On the empirical size of Nielsen's multivariate likelihood ratio test of fractional integration

“…Fractional integration methods and unit root tests have been gainfully employed in the analysis of macroeconomic data, among recent examples, Mansur et al (2004), who examined the Australian dollar; Lothian and Taylor (2004), who examined real exchange rates in the US, UK and France; Beliu and Higgins (2004) and Kasman et al (2005), who examined output convergence in the EU; Morana and Bagliano (2007), who examined US inflation and money growth; and Morana (2007), who proposed a new approach to estimating core inflation. Jensen (2006) examined the long-run Fisher effect in which nominal interest rates are permanently affected by monetary shocks that have had permanent affects on the inflation rate.…”

SME Stock Markets in Tropical Economies: Evolving Efficiency and Dual Long Memory

“…Conditional on a break in the mean, the degree of inflation persistence is much smaller than neglecting the break (Cecchetti & Debelle, ). Morana and Bagliano () reported that inflation series exhibits long‐memory component and regime switching persistence. Belkhouja and Boutahar () showed a lower estimate of long memory in inflation when regime shifts are taken into account.…”