Money and Prices in Estonia
AbstractThis paper examines the relationship between money and prices in Estonia in the period 1997Q1-2003Q3. The concept of a price (or real money) gap suggested by the P-star theory is applied to investigate whether information about the current money stock can be used to explain and/or predict GDP deflator inflation over the sample period. The results show that the money gap measure dominates the output gap as an explanatory variable for inflation in the short run. However, the money gap does not seem to be a proper indicator for predicting inflation over longer horizons, say, 12 months ahead. There are some signs that the output gap is becoming a better indicator of future inflation over time, but more data are needed to confirm this hypothesis.
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Bibliographic InfoPaper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2005-07.
Length: 39 pages
Date of creation: 10 Oct 2005
Date of revision: 10 Nov 2005
Publication status: published
Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-03 (All new papers)
- NEP-CBA-2005-08-03 (Central Banking)
- NEP-EEC-2005-08-03 (European Economics)
- NEP-FOR-2005-08-03 (Forecasting)
- NEP-MAC-2005-08-03 (Macroeconomics)
- NEP-MON-2005-08-03 (Monetary Economics)
- NEP-TRA-2005-08-03 (Transition Economics)
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