A monetary system of equations with inflationary expectations for the USA

A monetary system of equations with inflationary expectations for the USA
Document type
Working Paper
Author(s)
Bywaters, D S; Thomas, D G
Publisher
University of Hertfordshire
Date of publication
1 May 2009
Series
The University of Hertfordshire Business School Working Papers
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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The paper is an empirical investigation that places Livingston’s expectations of the Consumer Price Index (CPI) with the rate of inflation centre stage in a monetary system of equations with real money balances, output, employment, Federal Government debt and interest rates. The modelling approach is a Vector Auto- Regressions (VARs) scheme employing quarterly, observational data sets from U.S.A, spanning the period of 1959 to 2007. One of the important tasks is to find stationary processes for the CPI and the price expectations, which entails explaining the second-differences within the error-corrections, and using first-differences in the formation of co-integrating vectors, because the agents view them as levels in the long-run.

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