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Money and Prices in Estonia

Author

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  • Aurelijus Dabušinskas

    (Bank of Estonia)

Abstract

This 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.

Suggested Citation

  • Aurelijus Dabušinskas, 2005. "Money and Prices in Estonia," Bank of Estonia Working Papers 2005-07, Bank of Estonia, revised 10 Nov 2005.
    • Handle: RePEc:eea:boewps:wp2005-07
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    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2005/_wp_705.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    P-star; inflation; money demand;
    All these keywords.

    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

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