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Does Money Include Information for Prices in the Euro Area?

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  • Hans-Eggert Reimers

    ()
    (Hochschule Wismar)

Abstract

In this paper, the P-star framework is mainly used to examine the importance of money for future price movements in the euro area. Constructing the equilibrium price level, simple-sum M3 and different Divisia M3 aggregates are considered. In addition, nominal money changes are investigated in inflation equations. Adapting an in-sample analysis, Divisia aggregates are important for HICP development and to some extent for GDP deflator movement. The out-of-sample forecasting exercise presents evidence that simple-sum M3 includes more information for the HICP, whereas one of the Divisia aggregates helps to predict the future GDP deflator.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 223 (2003)
Issue (Month): 5 (September)
Pages: 581-602

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Handle: RePEc:jns:jbstat:v:223:y:2003:i:5:p:581-602

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Related research

Keywords: P-star model; Divisia monetary aggregates;

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References

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  1. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
  2. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  3. Barnett, William A & Offenbacher, Edward K & Spindt, Paul A, 1984. "The New Divisia Monetary Aggregates," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1049-85, December.
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  7. Stracca, Livio, 2001. "Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area," Working Paper Series 0079, European Central Bank.
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  11. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(2), pages 273-289, June.
  12. Corradi, Valentina & Swanson, Norman R. & Olivetti, Claudia, 2001. "Predictive ability with cointegrated variables," Journal of Econometrics, Elsevier, vol. 104(2), pages 315-358, September.
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Cited by:
  1. Aurelijus Dabušinskas, 2005. "Money and Prices in Estonia," Bank of Estonia Working Papers 2005-07, Bank of Estonia, revised 10 Nov 2005.
  2. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.

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