Econ 522 Homework Assignment 4: Inflation and Money Growth Analysis - Prof. Shu Wu, Assignments of Introduction to Macroeconomics

Download Econ 522 Homework Assignment 4: Inflation and Money Growth Analysis - Prof. Shu Wu and more Assignments Introduction to Macroeconomics in PDF only on Docsity! Econ 522 Homework Assignment 4 Due date: April 17, Monday The University of Kansas Spring 2006 1. Numerical Problem 1, 4 of Chapter 7 (page 272 - 273 of the textbook). 2. Data Application: inflation and money growth (1) You can go to the web site of the Federal Reserve Bank of St. Louis to download monthly data on CPI, M1 and M2 since 1959. http://research.stlouisfed.org/fred2/ (2) Compute annual inflation rate (from December to December) of CPI and annual growth rate of M1 and M2 (from December to December). Plot the 3 series, the inflation rate as measured by the growth rate of CPI, and money growth as measured by M1 and M2 separately, over time in the same graph. The inflation rate for, say 1978, can be computed as [CPI1978-CPI1977]/CPI1977, The money growth rate for, say 1978, can be computed as [M11978-M11977]/M11977, etc. (3) Also compute the 3-year moving average of the inflation rate and money growth rate (for both M1 and M2), starting with 1961. For example, the 3- year average of the inflation rate for, say 1978 is the average of the inflation rates in 1976, 1977 and 1978, etc. Plot the average inflation rate and average money growth rates (for both M1 and M2). (4) Is the inflation rate more closely related to M1 growth or M2 growth? Is the relationship of inflation to money growth stronger in the short run (using annual data) or in the longer run (using 3-year averages)?