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

Author

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  • Fabio Scacciavillani

    (International Monetary Fund)

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 test based on fractional differencing overcomes Evans' critique and that chronic inflation is essentially a monetary phenomenon caused by fiscal imbalance.

Suggested Citation

  • Fabio Scacciavillani, 1994. "Long Memory Processes and Chronic Inflation: Detecting Homogeneous Components in a Linear Rational Expectations Model," IMF Staff Papers, Palgrave Macmillan, vol. 41(3), pages 488-501, September.
    • Handle: RePEc:pal:imfstp:v:41:y:1994:i:3:p:488-501
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    Cited by:

    1. Mr. Fabio Scacciavillani & Mr. Malcolm D. Knight, 1998. "Current Accounts: What Is Their Relevance for Economic Policymaking?," IMF Working Papers 1998/071, International Monetary Fund.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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