| Abstract: | A  model of changes in the deflator for nondurables and services consumption expenditures is estimated simultaneously with the error-correction model of M2 growth described in Koenig (1996). The inflation forecasts generated by the joint model have marginal predictive power for changes in the GDP deflator and exhibit none of the systematic bias which has plagued the original  formulation in recent years. Output-market slack is of little use in predicting changes in the consumption deflator, but there is evidence of a speed effect. |
