A Modified P*-Model of Inflation Based on M1

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This paper examines the performance of M1 in an indicator-model of inflation over time horizons as long as 16 quarters into the future. The central conclusion of the paper is that, in addition to the output gap, the cumulative growth of M1 and the deviations of M1 from its long-run path provide "distant-early-warning" information about the future path of inflation.

Topic(s): Economic models
JEL Code(s): E, E3, E37