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Money in the Inflation Equation: the Euro Area Evidence

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Author Info
Fourçans, André () (ESSEC Business School)
Vranceanu, Radu () (ESSEC Business School)

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Abstract

The ECB is the only major central bank that still emphasizes the role of money in monetary policy management. In this paper, we bring some support to this approach. Taking into account Euro area data from the period between 1999 and 2007, we demonstrate that a steady 10 per cent increase in M3 may result in an inflation rate of approximately 2½ percentage points. A negative output gap would have a short term offsetting effect, and vice versa.

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Publisher Info
Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 08012.

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Length: 11 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:ebg:essewp:dr-08012

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Related research
Keywords: ECB; Inflation; Monetary Policy; Money;

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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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. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
    Other versions:
  2. Jesus M. Garcia-Iglesias, 2007. "How the European Central Bank decided its early monetary policy?," Applied Economics, Taylor and Francis Journals, vol. 39(7), pages 927-936. [Downloadable!] (restricted)
  3. Edward Nelson, 2008. "Why Money Growth Determines Inflation in the Long Run: Answering the Woodford Critique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1791-1814, December. [Downloadable!] (restricted)
    Other versions:
  4. Helge Berger & Pär Österholm, 2008. "Does Money Growth Granger-Cause Inflation in the Euro Area? Evidence from Out-of-Sample Forecasts Using Bayesian VARs," IMF Working Papers 08/53, International Monetary Fund. [Downloadable!]
    Other versions:
  5. Paolo Surico, 2007. "The Monetary Policy of the European Central Bank," Scandinavian Journal of Economics, Blackwell Publishing, vol. 109(1), pages 115-135, 03. [Downloadable!] (restricted)
  6. Stefan Gerlach & Katrin Assenmacher-Wesche, 2006. "Interpreting Euro area inflation at high and low frequencies," BIS Working Papers 195, Bank for International Settlements. [Downloadable!]
    Other versions:
  7. Ansgar Belke & Thorsten Polleit, 2007. "How the ECB and the US Fed set interest rates," Applied Economics, Taylor and Francis Journals, vol. 39(17), pages 2197-2209. [Downloadable!] (restricted)
    Other versions:
  8. Fourcans, Andre & Vranceanu, Radu, 2004. "The ECB interest rate rule under the Duisenberg presidency," European Journal of Political Economy, Elsevier, vol. 20(3), pages 579-595, September. [Downloadable!] (restricted)
  9. Gerlach, Stefan, 2003. "The ECB's Two Pillars," CEPR Discussion Papers 3689, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Understanding the Link between Money Growth and Inflation in the Euro Area," CEPR Discussion Papers 5683, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Fourcans, Andre & Vranceanu, Radu, 2007. "The ECB monetary policy: Choices and challenges," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 181-194. [Downloadable!] (restricted)
  12. Lawrence Christiano & Roberto Motto & Massimo Rostagno, 2007. "Two Reasons Why Money and Credit May be Useful in Monetary Policy," NBER Working Papers 13502, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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