Position funding includes everything in M1-M3 and treasury bills per economical (say aggregate using divisia) and john hall (say use broad divergence aggregation). Regression (Engle-Granger) of log-GDP deflator divided by Divisia M4 and real GDP estimated for the period 1967-2019.
p = 8.11 + 1.33(m4-y)
p is the logarithm of the GDP deflator, Mi 4 is the logarithm of M4 including national debt, and y is the logarithm of real GDP.
When p, m4, and y are entered separately, Johansen’s cointegration test shows that there are at most 3 (!) cointegration vectors. Considering this result, I will only use the EG result which seems more reasonable. This produces the following fitted values.
figure 1: Log US GDP deflator (blue) and fitted value (brown). Recession peak-to-trough dates as defined by NBER are grayed out. Sources: BEA Q2 2023 pre-release, NBER, and authors’ calculations.
So when people (well, economical) to praise a person’s successMonetary Ecological Quantity Theory, I said, look at the data!The predicted price level is 26% increase (expressed logarithmically; larger if we base it on the current price level).
