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Does global liquidity help to forecast US inflation?

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  • D'Agostino, Antonello

    (Central Bank and Financial Services Authority of Ireland)

  • Surico, Paolo

    (Bank of England and University of Bari)

Abstract

We construct a measure of global liquidity using the growth rates of broad money for the G7 economies. Global liquidity produces forecasts of US inflation that are significantly more accurate than the forecasts based on US money growth, Phillips curve, autoregressive and moving average models. The marginal predictive power of global liquidity is strong at three years horizons. Results are robust to alternative measures of inflation.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 10/RT/07.

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Length: 15 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:cbi:wpaper:10/rt/07

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  1. Doz, Catherine & Giannone, Domenico & Reichlin, Lucrezia, 2006. "A quasi maximum likelihood approach for large approximate dynamic factor models," Working Paper Series 0674, European Central Bank.
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  7. Giannone, Domenico & Reichlin, Lucrezia & Sala, Luca, 2005. "Monetary Policy in Real Time," CEPR Discussion Papers 4981, C.E.P.R. Discussion Papers.
    • Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 161-224 National Bureau of Economic Research, Inc.
  8. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  9. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
  10. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
  11. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
  12. Benati, Luca, 2009. "Long run evidence on money growth and inflation," Working Paper Series 1027, European Central Bank.
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