### TABLE 2 The Prediction Equation

#### P(t+1) = [1 + I(t+1)]*CPI(t);

```     Where;

I(t+1) = {f[X(t)] + E*X(11,t+1)}/CPI(t);

f[X(t)] = A + SUM[B(n)*DX(n,t)**2) + C(n)*DX(n,t) + D(n)*X(n,t-1);

n = 1 to 12; DX(n,t) = X(n,t) - X(n,t-1) ;   and;

n	       X(n,t)                  n        X(n,t)
1    Cash and Traveler Checks       7    Individual Loans
2    Other Check Deposits	       8    Bank Held Gov't Debt
3    Demand Deposits	               9    Other Bank Investment
4    Other Loans		      10    Savings
5    Comercial Loans               11    FED Held Gov't Debt
6    Real Estate Loan              12    CPI(t-1)

A = 3.18544	      E = 1.27029 E-2

n          B(n)	       C(n)	         D(n)

1      2.27364 E-2   -6.68723 E-2      -6.00026 E-2
2      4.75928 E-3   -9.94953 E-2      -3.43861 E-2
3     -9.99200 E-4    2.37615 E-3      -1.78246 E-5
4     -1.86761 E-5    4.86460 E-3       8.42774 E-3
5      3.21077 E-3   -2.75453 E-2       5.12235 E-3
6     -9.02170 E-2    3.06758 E-1       7.92440 E-2
7     -5.83964 E-3    1.24951 E-1      -1.98504 E-2
8      7.20666 E-3   -1.86342 E-2       5.46925 E-2
9     -1.82491 E-3   -2.19312 E-2       6.03587 E-2
10     -1.17732 E-6   -2.15496 E-3      -4.02140 E-3
11     -1.09966 E-2   -1.36005 E-2      -1.04321 E-1
12      5.22252 E-2   -2.19188 E-1      -7.63422 E-2

STATISTIIC 	        CPI        INFLATION
CORRELATION COEFFICIENT       0.999971      0.815603
STANDARD DEVIATION            0.537837      2.46961 E-3
DEGREES OF FREEDOM              106           107
(Data from FRB St. Louis - Dec., 1972 Through Mar, 1985)
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