A framework for applied macroeconomic forecasting (part 2)
In my two earlier posts on "A framework for applied macroeconomic forecasting" I have first sketched a general four-equation model for forecasting purposes and then I spelled out how to think about the one of these equations - the supply side of the economy (the AS curve). In this post I will look closer at how to model the demand side of the economy - the is the finally three equations in the economy. Fundamentally I think of the demand side of the economy as being discribed by the equation of exchange: (1) n = m + v Where n is the growth rate of nominal GDP, m is money supply growth (whatever measure you prefer) and v is the growth rate of money-velocity. All growth rates are quarter-to-quarter growth rates.