Wage-price dynamics : are they consistent with cost push?

Wages ; Inflation (Finance)

Money growth volatility and high nominal interest rates

The period 1979-86 saw (1) high interest rates, (2) volatile money growth, and (3) new Fed operating procedures. Was the third item the chief cause of the other two? Probably not. For much of the increased monetary volatility stemmed not from the new procedures but rather from the public’s deregulation-induced switching from assets included in M1 to those included in M1 and M2. Moreover it was not monetary volatility as much as deregulation-triggered rises in money demand that contributed to high rates early in the period.Money supply ; Interest rates

Some further results on the source of shift in M1 demand in the 1980s

What caused the observed shift of M1 demand in the 1980s? Rival candidate explanations stress (1) M1 growth volatility, (2) disinflation, (3) rising real value of stocks, (4) rising volume of financial transactions, (5) rising household financial wealth, and (6) introduction into M1 of interest-bearing checkable deposits. The evidence presented here supports item six only.Money supply

The forecast performance of alternative models of inflation

It is inappropriate to ignore the behavior of money in explaining the generation and evolution of aggregate inflation over time. It is shown that over the period 1977 to 1987 an inflation model based on M2 demand describes more accurately the actual behavior of inflation than an expectations-augmented version of the Phillips curve.Inflation (Finance) ; Money supply ; Forecasting

In search of a stable, short-run M1 demand function

Conventional M1 demand functions reformulated using error-correction and cointegration techniques neither depict parameter stability nor satisfactorily explain short-run changes in M1. Thus, M1 remains unreliable as an indicator variable for monetary policy.Money supply

Inflationary expectations, money growth, and the vanishing liquidity effect of money on interest : a further investigation

Market participants recognize two opposing effects of money supply growth on interest rates: a temporary liquidity effect and a permanent expectations effect. That the latter dominates in the long run is clear—a sustained increase in money growth causes proportionally higher interest rates due to a rise in inflationary expectations. In the short run, however, this interest-raising expectations effect is to some degree offset by the interest-lowering liquidity effect as monetary acceleration initially gluts the market for money balances. Depending on the relative strengths of these two opposing forces, increased money growth may lower interest rates for a while. In the second article in this Review, “Inflationary Expectations, Money Growth, and the Vanishing Liquidity Effect of Money on Interest: A Further Investigation,” Yash Mehra examines the historical response of interest rates to changes in money growth and finds that the pattern of response has changed substantially over time. During the ‘50s and ‘60s, accelerations in money growth significantly lowered interest rates in the short run through the liquidity effect. In the ‘70s, however, the liquidity effect was no longer significant. Triggered by high and variable rates of inflation, inflationary expectations became more responsive to changes in money growth and the expectations effect began to dominate the liquidity effect even in the short run. As a result, the temporary lowering of interest rates following an acceleration of money growth is now shorter lived and less pronounced than it was during the ‘50s and ‘60s.Money

Inflation uncertainty and the recent low level of the long bond rate

Inflation (Finance) ; Bond market

Unit labor costs and the price level

Prices ; Wages

An error-correction model of the long-term bond rate

Bonds ; Econometric models

Predicting the recent behavior of inflation using output gap-based Phillips curves

Inflation (Finance)