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Monetary policy and inflation rate in the behavior of consumer sentiment in the us. A fractional integration and cointegration analysis

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  • Monge, Manuel
  • Lazcano, Ana
  • Infante, Juan

Abstract

Consumer sentiment is a relevant tool for experts when it comes to determining the economic situation in a country, making it possible to analyze the spending trend in advance; for this reason, this paper analyzes links between monetary policy and the inflation rate in the behavior of consumer sentiment in the United States. We use methodologies based on fractional integration and fractional cointegration to obtain the stochastic properties of the monthly time series, from December 2019 to August 2022. The results using fractional integration methodologies exhibit a high degree of persistence and the consumer price index (CPI) and consumer sentiment index present a non-mean reversion I(1) behavior. Focusing on the cointegrating part, we conclude from the results that: 1) an increase in the variable “Total Monetary Base” produces an increase in the CPI, 2) the “variation in the total monetary base” in the United States does not affect consumer sentiment, and 3) a positive variation in the consumer sentiment indicator affects the increase in the inflation rate in the United States.

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  • Monge, Manuel & Lazcano, Ana & Infante, Juan, 2024. "Monetary policy and inflation rate in the behavior of consumer sentiment in the us. A fractional integration and cointegration analysis," Research in Economics, Elsevier, vol. 78(3).
    • Handle: RePEc:eee:reecon:v:78:y:2024:i:3:s1090944324000450
    DOI: 10.1016/j.rie.2024.100981
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    More about this item

    Keywords

    Consumer sentiment; CPI; Total monetary base; Fractional integration; Fractional cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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