Money and prices in the Polish economy. Seasonal cointegration approach
Jacek Kotłowski ()
No 20, Working Papers from Department of Applied Econometrics, Warsaw School of Economics
The paper presents the analysis of the long run causality behaviour between money and prices in the Polish economy during the transition period. The study makes use of the monetary inflation model known as the P-star model, originally developed by the FED economists at the end of 80-ties. The research on the relationship between money and prices in the Polish economy carried out to date indicates that some variables (GDP, prices) show the irregular seasonal pattern. For this reason we propose to analyse the long run relationship between money and prices in the Polish economy by means of seasonal cointegration, developed by Hylleberg, Engle, Granger and You in the beginning of 90-ties. The main hypothesis has been verified positively. The results of the research give the evidence that there exists a long-run causality relationship between money and prices (long-run cointegration relationship), which follows the assumptions of the P-star inflation model. The results also indicate that there are no seasonal cointegrating relationships in the P-star inflation model, which can be interpreted as the money demand equations. This means that the quality of the inflation forecasts cannot be improved by applying the additional seasonal cointegrating relationships to this model.
Keywords: money; inflation; P-star; money demand; real money gap; seasonality; seasonal cointegration (search for similar items in EconPapers)
JEL-codes: C32 E31 E41 (search for similar items in EconPapers)
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