Money Monetary Policy

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By P. Arestis, G. Zezza

There were very important advances in financial economics and macroeconomics lately. In macroeconomics there was the paramount improvement of the recent Consensus Macroeconomics in addition to major coverage implications, thereby giving upward push to the concept of recent financial coverage. This e-book offers with the main points of those advancements and additional ones similar to funds, credits and the enterprise cycle. including to the research are advancements that concentrate on matters for open and spatial macroeconomics.

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Quarterly data show the same feature but allow for a richer specification because we can use the 6-VAR. 499 points of the quarterly inflation rate (about 2 points of annual rate) using a random walk. Sub-period analysis provides some interesting results. Whatever the forecast model is, forecast errors become smaller. Results are more precise compared to those with annual data, and several differences between models appear. 34). 34). 24 for the univariate forecasts. Then, as Ball (2000) has shown, if a simple adaptive behaviour produces much more important errors than an optimal multivariate forecast, the utilization of an univariate forecast produces only few additional errors.

Inflation dynamics are then seen as an AR(p) process: πt+1 = ρ1 πt + ρ2 πt−1 + · · · + ρp πt−p+1 + with t t+1 ∼ N(0, 1). Expected inflation is given by: Et (πt+1 ) = πt + ρ1 πt + ρ2 πt−1 + · · · + ρp πt−p+1 We use the minimization of the Akaike Information Criteria for computing the optimal number of lags. It ensures that the introduction of supplementary lags does not provide better forecasts. We select 2 lags in univariate and multivariate models when using annual data. With quarterly data the optimal number of lags is 5 for the 6-VAR specification but only 3 for other multivariate specifications (3-VAR and 2-VAR), and 4 lags for the optimal univariate specification.

Schiantarelli and A. Sembenelli (1998) ‘Firms’ Financial and Real Responses to Monetary Tightening: Evidence for Small and Large Italian Companies’, Giornale degli Economisti e Annali di Economia, 57, 35–64. Rudebusch, D. ’, International Economic Review, 39, 907–31. O. (1981) ‘Real Money Balances as a Productive Input. Further Evidence’, Journal of Monetary Economics, 7, 207–25. Townsend, R. (1979) ‘Optimal Contracts and Competitive Markets with Costly State Verification’, Journal of Economic Theory, 20, 265–93.

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