Re: Reply to B. Mitchell, P. Davidson

["Alan G. Isaac" <AISAAC@xxxxxxxxxxxx>]

I thought the theoretical story would be more transparent. For
example, if we were to tell a story about a asset market
equilibrium and a stable money demand function, we need add
only two components: an integrated forcing variable for money demand
(there is evidence of this for both the real rate and for income)
monetary authority that adjusts policy through innovations in
money growth rates (rather than levels) So, I cannot see why
you would find this example "theoretically
vacuous" or "meaningless". It has the very natural interpretation
that money and prices don't have a long run link but inflation
is still tied to money growth. --Alan G. Isaac


On Tue, 14 Feb 1995 09:18:00 -0700 <ACSLKS@xxxxxxxxxxxxxxxx> said:
>It is a counter-example inasmuch as it represents a relationship that one can
>actually correlate, but it is theoretically vacuous.  If inflation and money
>growth are cointegrated, then both are I(1) and the first differences of each
>would appear in the ECM along with the cointegrating term (of course the first
>differences would amount to second differences for these variables).  The same
>would be the case for estimating a real money demand or supply relation.
>
>I see no problem with your case involving real money, inflation, and money
>growth.
>
>Lonnie K. Stevans
>