Long Memory Processes and Chronic Inflation: Detecting Homogeneous Components in a Linear Rational Expectation Model

66 Pages Posted: 15 Feb 2006

See all articles by Fabio Scacciavillani

Fabio Scacciavillani

Goldman Sachs - Economics Research Department

Date Written: January 1994

Abstract

This paper is an empirical study of the links between monetary variables and inflation based on Cagan`s equation and its rational expectations solution, when the forcing variable is a fractionally integrated process. As demonstrated by Hamilton and Whiteman, the existence of bubbles and other extraneous influences can be detected only by verifying the difference in the order of integration between the monetary base and the price level series. This paper shows that a fractionally differenced model overcomes Evans` critique of this test and that chronic inflation is essentially a monetary phenomenon caused by fiscal imbalance.

JEL Classification: C22, E31, E58

Suggested Citation

Scacciavillani, Fabio, Long Memory Processes and Chronic Inflation: Detecting Homogeneous Components in a Linear Rational Expectation Model (January 1994). IMF Working Paper No. 94/2, Available at SSRN: https://ssrn.com/abstract=883413

Fabio Scacciavillani (Contact Author)

Goldman Sachs - Economics Research Department ( email )

Peterborough Court
133 Fleet Street
London, EC4A 2BB
United Kingdom
+44 20 755 25254 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
97
Abstract Views
1,261
Rank
489,057
PlumX Metrics