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Interpreting Euro area inflation at high and low frequencies

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  • Stefan Gerlach
  • Katrin Assenmacher-Wesche

    (Swiss National Bank)

Abstract

Several authors have recently interpreted the ECB's two-pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands. The ECB has publicly supported this understanding of the framework. This paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions, which allow for a natural definition of the short and long run in terms of specific frequency bands, and causality tests in the frequency domain. The main finding is that variations in inflation are well explained by low-frequency movements of money and real income growth and high-frequency fluctuations of the output gap.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 195.

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Length: 40 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:bis:biswps:195

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Keywords: frequency domain; quantity theory; money growth; inflation; spectral regression;

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References

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