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The ECB'S Money Pillar

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  • Albert Jaeger
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    Abstract

    This paper discusses the case for a money pillar in the European Central Bank''s (ECB) monetary policy strategy. Time-series evidence for industrial countries based on frequency-domain and unobserved-components analysis suggests that money can play a useful role in gauging and constraining long-run risks to price stability. Moreover, the specter of asset price bubbles and some of the area''s institutional features, which may impart considerable persistence to area-wide inflation, caution against shifting to conventional inflation targeting. But the time series evidence also seems to point to a relatively loose connection between variations in nominal money growth and inflation in the short to medium run. As a consequence, effective communication of the ECB''s monetary policy decisions from the point of view of the present money pillar is likely to remain a challenging task.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/82.

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    Length: 32
    Date of creation: 01 Apr 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/82

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    Related research

    Keywords: European Central Bank; Price stabilization; inflation; monetary policy; central bank; money growth; inflation targeting; price stability; inflation rate; real money; inflation target; money stock; inflation rates; price inflation; real output; monetary targeting; monetary policy strategy; inflation process; monetary phenomenon; monetary fund; monetary stance; actual inflation; real interest rate; monetary analysis; national bank; monetary policy strategies; annual inflation; expectations of inflation; quantity theory of money; monetary transmission; inflation objective; aggregate demand; macroeconomic stability; monetary policy decisions; monetary transmission mechanism; terms of trade; moderate inflation; monetary indicators; inflation forecasts; low inflation; average inflation; monetary growth; price level; gdp deflator; inflation experiences; inflation targeting framework; monetary anchor; theory of money; lower inflation; financial stability; nominal variables; monetary data; money market; changes in prices; quantity theory; inflationary pressures; inflation targeting regime; stock of money; real wages; inflation response;

    References

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    1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    2. 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.
    3. Issing,Otmar & Gaspar,Vitor & Angeloni,Ignazio & Tristani,Oreste, 2001. "Monetary Policy in the Euro Area," Cambridge Books, Cambridge University Press, number 9780521783248, October.
    4. De Grauwe, Paul & Polan, Magdalena, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," CEPR Discussion Papers 2841, C.E.P.R. Discussion Papers.
    5. Paul De Grauwe & Magdalena Polan, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," International Economics Working Papers Series wpie009, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
    6. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
    7. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    8. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    9. von Hagen, Jürgen & Brückner, Matthias, 2001. "Monetary policy in unknown territory: The European Central Bank in the early years," ZEI Working Papers B 18-2001, ZEI - Center for European Integration Studies, University of Bonn.
    10. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
    11. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
    12. Douglas Laxton & Papa N’Diaye, 2002. "Monetary Policy Credibility and the Unemployment-Inflation Tradeoff: Some Evidence from Seventeen OECD Countries," Computing in Economics and Finance 2002 364, Society for Computational Economics.
    13. Rich, Georg, 2000. "Monetary Policy without Central Bank Money: A Swiss Perspective," International Finance, Wiley Blackwell, vol. 3(3), pages 439-69, November.
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