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A Two-Pillar Phillips Curve for Switzerland

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  • Petra Gerlach-Kristen

Abstract

Monetary aggregates have historically played an important role in Swiss monetary policy, with the Swiss National Bank using money growth targets until 1999. Since 2000, when a new policy framework was introduced that focuses on an inflation forecast, money growth has been used as an indicator variable. Given the continued reliance on monetary aggregates, the question arises how useful money growth is for explaining future price developments. Using Swiss data spanning 1979 to 2005, this paper estimates Phillips curve models that incorporate a measure of "trend" money growth. Using M3, we find that money growth impacts on inflation. M2, however, matters only if the downward shift in nominal interest rates over the sample is taken into account.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 143 (2007)
Issue (Month): IV (December)
Pages: 425-448

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Handle: RePEc:ses:arsjes:2007-iv-3

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Keywords: inflation; money growth; Phillips curve; Switzerland;

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References

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  1. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
  2. Ernst Baltensperger & Thomas Jordan & Marcel Savioz, 2001. "The demand for M3 and inflation forecasts: An empirical analysis for Switzerland," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(2), pages 244-272, June.
  3. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Money growth, output gaps and inflation at low and high frequency: Spectral estimates for Switzerland," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 411-435, February.
  4. 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.
  5. Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
  6. Katrin Assenmacher-Wesche & M. Hashem Pesaran, 2009. "A VECX* model of the Swiss economy," Economic Studies 2009-06, Swiss National Bank.
  7. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
  8. Gerlach, Stefan, 2003. "The ECB's Two Pillars," CEPR Discussion Papers 3689, C.E.P.R. Discussion Papers.
  9. Fischer, Andreas M, 1993. "Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 248-58, May.
  10. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
  11. Andreas M. Fischer & Michel Peytrignet, 1990. "Are Larger Monetary Aggregates Interesting? Some Exploratory Evidence for Switzerland Using Feedback Models," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 126(IV), pages 505-520, December.
  12. Charles Wyplosz, 2001. "Do we know how low inflation should be?," IHEID Working Papers 06-2001, Economics Section, The Graduate Institute of International Studies.
  13. Samuel Reynard, 2006. "Money and the Great Disinflation," Working Papers 2006-07, Swiss National Bank.
  14. Bruggeman, Annick & Camba-Méndez, Gonzalo & Fischer, Björn & Sousa, João, 2005. "Structural filters for monetary analysis: the inflationary movements of money in the euro area," Working Paper Series 0470, European Central Bank.
  15. Thomas Laubach & Adam Posen, 1997. "Some comparative evidence on the effectiveness of inflation targeting," Research Paper 9714, Federal Reserve Bank of New York.
  16. Markus Knell & Helmut Stix, 2004. "Three Decades of Money Demand Studies. Some Differences and Remarkable Similarities," Working Papers 88, Oesterreichische Nationalbank (Austrian Central Bank).
  17. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
  18. Albert Jaeger, 2003. "The ECB'S Money Pillar," IMF Working Papers 03/82, International Monetary Fund.
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Cited by:
  1. Kitov, Oleg & Kitov, Ivan, 2011. "Inflation and unemployment in Switzerland: from 1970 to 2050," MPRA Paper 28887, University Library of Munich, Germany.
  2. Petra Gerlach-Kristen, 2006. "A Two-Pillar Phillips Curve for Switzerland," Working Papers 2006-09, Swiss National Bank.
  3. Aleksejs Melihovs & Anna Zasova, 2007. "Estimation of the Phillips Curve for Latvia," Working Papers 2007/03, Latvijas Banka.

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