| This dissertation consists of three essays. Chapter II considers the question of whether M2 growth can be used to forecast inflation at horizons of up to ten years. A vector error correction (VEC) model serves as our benchmark model. We find that M2 growth does have marginal predictive content for inflation at horizons of more than two years, but only when allowing for cointegration and when the cointegrating rank and vector are specified a priori. When estimating the cointegration vector or failing to impose cointegration, there is no longer evidence of causality running from M2 growth to inflation at any forecast horizon. Finally, we present evidence that M2 needs to be redefined, as forecasts of the VEC model using data on M2 observed after 1993 are worse than the forecasts of an autoregressive model of inflation.; Chapter III reconsiders the evidence for a “rockets and feathers” effect in gasoline markets. We estimate an error correction model of gasoline prices using daily data for the period 1985–1998 and fail to find any evidence of asymmetry. We show that previous work suffered from two problems. First, nonstationarity in some of the regressors was ignored, leading to invalid inference. Second, the weekly data used in previous work leads to a temporal aggregation problem, and thus biased estimates of impulse response functions.; Chapter IV tests for a forecasting relationship between the volume of litigation and macroeconomic variables. We analyze annual data for the period 1960–2000 on the number of cases filed, real GDP, real consumption expenditures, inflation, unemployment, and interest rates. Bivariate Granger causality tests show that several of the macroeconomic variables can be used to forecast the volume of litigation, but show no evidence that the volume of litigation can be used to forecast any of the macroeconomic variables. The analysis is then extended to bivariate and multivariate regression models, and we find similar evidence to that of the Granger causality tests. We conclude that agents desiring a forecast of the volume of litigation should consider the state of the economy. |
