Question
Abel, Bernanke and Croushore, 10th edition, Chapter 7, Data Problems, No. 2. Graph the CPI inflation rate, M1 money growth, and M2 money growth
Abel, Bernanke and Croushore, 10th edition, Chapter 7, Data Problems, No. 2. Graph the CPI inflation rate, M1 money growth, and M2 money growth for the United States, using annual data since 1959. (Find annual growth rates for December to December.) Also graph the three-year average rate of inflation and the three-year averages of M1 growth and M2 growth, starting with 1962. (The three-year average rate of inflation for, say, 1978 is the average of the inflation rates in 1976, 1977, and 1978. Similarly, the three-year average money growth rate for 1978 is the average of the money growth rates for 1976, 1977, and 1978.) 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 (in annual data) or in the longer run (using three-year averages)? What has happened to the link between inflation and money growth since 1980?
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