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Inflation, Money Growth, and I(2) Analysis

Author

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  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

Abstract
The paper discusses the dynamics of inflation and money growth in a stochastic framework, allowing for double unit roots in the nominal variables. It gives some examples of typical I(2) ’symptoms’ in empirical I(1) models and provides both a nontechnical and a technical discussion of the basic differences between the I(1) and the I(2) model. The notion of long-run and medium-run price homogeneity is discussed in terms of testable restrictions on the I(2) model. The Brazilian high inflation period of 1977:1-1985:5 illustrates the applicability of the I(2) model and its usefulness to address questions related to inflation dynamics.

Suggested Citation

  • Katarina Juselius, 2004. "Inflation, Money Growth, and I(2) Analysis," Discussion Papers 04-31, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0431
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2004/0431.pdf/
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    Keywords

    cointegrated VAR; price homogeneity; Cagan model; hyper inflation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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