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Does Money Matter For Inflation In The Euro Area?

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Author Info
SYLVIA KAUFMANN
PETER KUGLER

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Abstract

"We analyze the relationship between M3 growth and inflation within an error correction framework including also the output gap, the 3-mo EURIBOR, and the 10-yr government bond yield. We find robust cointegration between money growth and inflation. Shocks in M3 growth account for up to 30% of the inflation forecast error variance, while the effects of output gap and interest rate shocks are mainly transitory. Significantly different dynamics are found during periods at the end of the seventies and beginning of the eighties when interest rate and inflation rate levels were high and real money growth decreasing. "("JEL "C32, E31, E41) Copyright (c) 2008 Western Economic Association International.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.2008.00113.x
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Publisher Info
Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 26 (2008)
Issue (Month): 4 (October)
Pages: 590-606
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Handle: RePEc:bla:coecpo:v:26:y:2008:i:4:p:590-606

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  2. Jürgen von Hagen, 2004. "Hat die Geldmenge ausgedient?," Perspektiven der Wirtschaftspolitik, Blackwell Publishing, vol. 5(4), pages 423-453, November. [Downloadable!] (restricted)
  3. Kai Carstensen, 2003. "Is European Money Demand Still Stable?," Kiel Working Papers 1179, Kiel Institute for the World Economy. [Downloadable!]
  4. Engsted, Tom & Gonzalo, Jesus & Haldrup, Niels, 1997. "Testing for multicointegration," Economics Letters, Elsevier, vol. 56(3), pages 259-266, November. [Downloadable!] (restricted)
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  5. Sergio Nicoletti Altimari, 2001. "Does money lead inflation in the euro area?," Working Paper Series 063, European Central Bank. [Downloadable!]
  6. Neumann, Manfred J.M. & Greiber, Claus, 2004. "Inflation and core money growth in the euro area," Discussion Paper Series 1: Economic Studies 2004,36, Deutsche Bundesbank, Research Centre. [Downloadable!]
  7. Annick Bruggeman & Paola Donati & Anders Warne, 2003. "Is the demand for Euro area M3 stable?," Working Paper Series 255, European Central Bank. [Downloadable!]
  8. Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Stefan Gerlach, 2004. "The two pillars of the European Central Bank," Economic Policy, CEPR, CES, MSH, vol. 19(40), pages 389-439, October. [Downloadable!] (restricted)
  10. Haldrup, Niels, 1994. "The asymptotics of single-equation cointegration regressions with I(1) and I(2) variables," Journal of Econometrics, Elsevier, vol. 63(1), pages 153-181, July. [Downloadable!] (restricted)
  11. Oliver Holtemöller, 2004. "A monetary vector error correction model of the Euro area and implications for monetary policy," Empirical Economics, Springer, vol. 29(3), pages 553-574, 09. [Downloadable!] (restricted)
  12. Günter Coenen & Juan-Luis Vega, 1999. "The demand for M3 in the euro area," Working Paper Series 6, European Central Bank. [Downloadable!]
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  13. Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "Modeling Credit Aggregates," Working Papers 90, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sylvia Kaufmann & Peter Kugler, 2006. "Expected Money Growth, Markov Trends and the Instability of Money Demand in the Euro Area," Working Papers 131, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  2. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Interpreting Euro Area Inflation at High and Low Frequencies," CEPR Discussion Papers 5632, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Michael Woodford, 2007. "Does a "two-pillar Phillips curve" justify a two-pillar monetary policy strategy?," Discussion Papers 0607-06, Columbia University, Department of Economics. [Downloadable!]
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  4. Michael Woodford, 2007. "How Important is Money in the Conduct of Monetary Policy?," NBER Working Papers 13325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Sylvia Kaufmann & Maria Teresa Valderrama, 2007. "The role of credit aggregates and asset prices in the transmission mechanism: a comparison between the euro area and the US," Working Paper Series 816, European Central Bank. [Downloadable!]
  6. Kai Carstensen, 2007. "Is core money growth a good and stable inflation predictor in the euro area?," Kiel Working Papers 1318, Kiel Institute for the World Economy. [Downloadable!]
  7. Helge Berger & Emil Stavrev, 2008. "The Information Content of Money in Forecasting Euro Area Inflation," IMF Working Papers 08/166, International Monetary Fund. [Downloadable!]
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