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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
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.:
- Gerlach, Stefan & Svensson, Lars E O, 2002.
"Money and Inflation in the Euro-Area: A Case for Monetary Indicators?,"
CEPR Discussion Papers
3392, C.E.P.R. Discussion Papers.
- Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
- Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc.
- Lars E.O. Svensson & Stefan Gerlach, 2001. "Money and inflation in the Euro Area: A case for monetary indicators?," BIS Working Papers 98, Bank for International Settlements.
- John A. Tatom, 1990. "The link between monetary aggregates and prices," Working Papers 1990-002, Federal Reserve Bank of St. Louis.
- Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
- Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-72, December.
- Gunter Coenen & Juan Luis Vega, 2000.
"The Demand for M3 in the Euro Area,"
Econometric Society World Congress 2000 Contributed Papers
0976, Econometric Society.
- John A. Tatom, 1990. "The P-star approach to the link between money and prices," Working Papers 1990-008, Federal Reserve Bank of St. Louis.
- Hans-Eggert Reimers, 2003. "Does Money Include Information for Output in the Euro Area?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 231-252, June.
- Athanasios Orphanides & Richard Porter, 1998.
"P* revisited: money-based inflation forecasts with a changing equilibrium velocity,"
Finance and Economics Discussion Series
1998-26, Board of Governors of the Federal Reserve System (U.S.).
- Orphanides, Athanasios & Porter, Richard D., 2000. "P revisited: money-based inflation forecasts with a changing equilibrium velocity," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 87-100.
- Hassler, Uwe, 2000. " Cointegration Testing in Single Error-Correction Equations in the Presence of Linear Time Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 621-32, December.
- Svensson, Lars, 1999.
"Does the P* Model provide Any Rationale for Monetary Targeting?,"
671, Stockholm University, Institute for International Economic Studies.
- Lars E. O. Svensson, 2000. "Does the P* Model Provide Any Rationale for Monetary Targeting?," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 69-81, 02.
- Svensson, L.E.O., 1999. "Does the P* Model Provide any Rationale for Monetary Targeting," Papers 671, Stockholm - International Economic Studies.
- Svensson, Lars E O, 1999. "Does the P* Model Provide Any Rationale for Monetary Targeting?," CEPR Discussion Papers 2198, C.E.P.R. Discussion Papers.
- Lars E.O. Svensson, 2000. "Does the P* Model Provide Any Rationale for Monetary Targeting?," NBER Working Papers 7178, National Bureau of Economic Research, Inc.
- John A. Tatom, 1992. "The P-star model and Austrian prices," Working Papers 1992-001, Federal Reserve Bank of St. Louis.
- Ahking, Francis W., 2002. "Model mis-specification and Johansen's co-integration analysis: an application to the US money demand," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 51-66, March.
- Dolado, Juan José & Banerjee, Anindya & Mestre, Ricardo, . "Error-correction Mechanism Tests for Cointegration in a Single-equation Framework," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3275, Universidad Carlos III de Madrid.
- Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
- Hans-Eggert Reimers, 2003. "Does Money Include Information for Prices in the Euro Area?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 223(5), pages 581-602, September.
- Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peeter Luikmel).
If references are entirely missing, you can add them using this form.