This article develops an empirically constant, data-coherent, error-correction model for inflation in Australia. The level of consumer prices is a markup over domestic and import costs, with adjustments for dynamics and relative aggregate demand. We address issues of cointegration, general to specific modeling, dynamic specification, model evaluation and testing, parameter constancy, forecasting, and exogeneity. We also test this model against existing models of Australian prices: This model encompasses (but is not encompassed by) the existing models.

Modeling Inflation in Australia

This paper discusses the econometric methodology of general-to-specific modeling, in which the modeler simplifies an initially general model that adequately characterizes the empirical evidence within his or her theoretical framework. Central aspects of this approach include the theory of reduction, dynamic specification, model selection procedures, model selection criteria, model comparison, encompassing, computer automation, and empirical implementation. This paper thus reviews the theory of reduction, summarizes the approach of general-to-specific modeling, and discusses the econometrics of model selection, noting that general-to-specific modeling is the practical embodiment of reduction. This paper then summarizes fifty-seven articles key to the development of general-to-specific modeling.

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General-to-specific Modeling: An Overview and Selected Bibliography

https://www.elibrary.imf.org/doc/IMF001/02475-9781451848700/02475-9781451848700/Other_formats/Source_PDF/02475-9781451895285.pdf

Fiscal Deficits and Inflation

UK inflation has varied greatly in response to many economic policy and exchange-rate regime shifts, two world wars and two oil crises, as well as legislative and technological changes. Inflation is modelled as responding to excess demands from all sectors of the economy: goods and services, factors of production, money, financial assets, foreign exchange, and government deficits. Equilibrium-correction terms are developed for each of these over the sample. Indicator variables and commodity prices capture turbulent years. Variables representative of most theories of inflation matter empirically, yielding an eclectic model inconsistent with any ‘single-cause’ explanation. Copyright © 2001 John Wiley & Sons, Ltd.

Modelling UK inflation, 1875–1991

This overview examines conditions for reliable economic policy analysis based on econometric models, focusing on the econometric concepts of exogeneity, cointegration, causality, and invariance. Weak, strong, and super exogeneity are discussed in general, and these concepts are then applied to the use of econometric models in policy analysis when the variables are cointegrated. Implications follow for model constancy, the Lucas critique, equation inversion, and impulse response analysis. A small money-demand model for the United Kingdom illustrates the main analytical points. This article then summarizes the other articles in this issue's special section on exogeneity, cointegration, and economic policy analysis.

/pdf/exogeneity-cointegration-and-economic-policy-analysis-2tnw6iu226.pdf

Exogeneity, Cointegration, and Economic Policy Analysis

This article analyzes the empirical relationship between inflation and the budget deficit for the Turkish economy by a multivariate cointegration analysis. A single-equation model shows that the scaled budget deficit (as well as income growth and debt monetization) significantly affects inflation in Turkey. The conditional model of inflation is constant, and it encompasses a previously estimated model.

The relationship between inflation and the budget deficit in Turkey

/pdf/the-relationship-between-inflation-and-the-budget-deficit-in-4l0b992m40.pdf

The Relationship Between Inflation and the Budget Deficit in Turkey

The inflation process in Turkey is investigated utilizing the multivariate cointegration model that is based on the joint analysis of long-run and short-run behavior. Excess demand in each sector--monetary, government, international and labor--as measured by the deviation from the long-run equilibrium is allowed to potentially effect the inflation rate. Excess demand in the government sector is found to be the main determinant of the Turkish inflation rate. Thus, a rate policy implication is that inflation could be reduced rapidly by eliminating the fiscal deficit. Copyright 1995 by Blackwell Publishing Ltd

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An integrated analysis of turkish inflation

http://yoksis.bilkent.edu.tr/pdf/files/10.1016-0377-2217(95)00071-2.pdf

Efficiency of the Turkish Stock Exchange with respect to monetary variables: A cointegration analysis

This paper estimates the Cagan type demand for money function for Turkish economy during the period 1986:1–1995:3 and tests whether Cagan's specification fits the Turkish data using an econometric technique assuming that forecasting errors are stationary. This paper also tests the hypothesis that monetary policy was implemented in aiming to maximize the inflation tax revenue. Finally, the Cagan model is estimated with the additional assumption of rational expectations for Turkey for the considered period.

/pdf/money-demand-the-cagan-model-testing-rational-expectations-w637rgq4wv.pdf

Kivilcim Metin

Papers

The relationship between inflation and the budget deficit in Turkey

The Relationship Between Inflation and the Budget Deficit in Turkey

An integrated analysis of turkish inflation

Efficiency of the Turkish Stock Exchange with respect to monetary variables: A cointegration analysis

Money demand, the Cagan model, testing rational expectations vs adaptive expectations: The case of Turkey