Money growth and inflation in the euro area: a time-frequency view
AbstractThis paper provides new insights on the relationship between money growth and inflation in the euro area over the last forty years. This highly relevant link for the European Central Bank monetary policy strategy is assessed using wavelet analysis. In particular, wavelet analysis allows to study simultaneously the relationship between money growth and inflation in the euro area at the frequency level and assess how it has changed over time. The findings indicate a stronger link between inflation and money growth at low frequencies over the whole sample period. At the typical business cycle frequency range the link is only present until the beginning of the 1980’s. Moreover, there seems to be a recent deterioration of the leading properties of money growth with respect to inflation in the euro area. These results highlight the importance of a regular assessment of the role of money growth in tracking inflation developments in the euro area since such relationship varies across frequencies and over time.
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 Banco de Portugal, Economics and Research Department in its series Working Papers with number w201122.
Date of creation: 2011
Date of revision:
Other versions of this item:
- António Rua, 2012. "Money Growth and Inflation in the Euro Area: A Time-Frequency View," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(6), pages 875-885, December.
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-CBA-2011-09-16 (Central Banking)
- NEP-EEC-2011-09-16 (European Economics)
- NEP-MAC-2011-09-16 (Macroeconomics)
- NEP-MON-2011-09-16 (Monetary 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.:
- Estrella, Arturo & Mishkin, Frederic S., 1997.
"Is there a role for monetary aggregates in the conduct of monetary policy?,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 279-304, October.
- Arturo Estrella & Frederic S. Mishkin, 1996. "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?," NBER Working Papers 5845, National Bureau of Economic Research, Inc.
- Nuno Alves & Carlos Robalo Marques & João Sousa, 2007. "Is the euro area M3 abandoning us?," Working Papers w200720, Banco de Portugal, Economics and Research Department.
- Rua, António, 2010.
"Measuring comovement in the time-frequency space,"
Journal of Macroeconomics,
Elsevier, vol. 32(2), pages 685-691, June.
- Stefan Gerlach & Katrin Assenmacher-Wesche, 2006.
"Interpreting Euro area inflation at high and low frequencies,"
BIS Working Papers
195, Bank for International Settlements.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Interpreting euro area inflation at high and low frequencies," European Economic Review, Elsevier, vol. 52(6), pages 964-986, August.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Interpreting Euro Area Inflation at High and Low Frequencies," CEPR Discussion Papers 5632, C.E.P.R. Discussion Papers.
- Benati, Luca, 2009. "Long run evidence on money growth and inflation," Working Paper Series 1027, European Central Bank.
- Rolnick, Arthur J & Weber, Warren E, 1997. "Money, Inflation, and Output under Fiat and Commodity Standards," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1308-21, December.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999.
"The Band Pass Filter,"
NBER Working Papers
7257, National Bureau of Economic Research, Inc.
- Haug, Alfred A. & Dewald, William G., 2004. "Longer-term effects of monetary growth on real and nominal variables, major industrial countries, 1880-2001," Working Paper Series 0382, European Central Bank.
- Bruggeman, Annick & Camba-Méndez, Gonzalo & Fischer, Björn & Sousa, João, 2005. "Structural filters for monetary analysis: the inflationary movements of money in the euro area," Working Paper Series 0470, European Central Bank.
- Trecroci, Carmine & Vega, Juan Luis, 2000. "The information content of M3 for future inflation," Working Paper Series 0033, European Central Bank.
- Sargent, Thomas & Surico, Paolo, 2008. "Monetary policies and low-frequency manifestations of the quantity theory," Discussion Papers 26, Monetary Policy Committee Unit, Bank of England.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008.
"Money growth, output gaps and inflation at low and high frequency: Spectral estimates for Switzerland,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 32(2), pages 411-435, February.
- Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2006. "Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland," CEPR Discussion Papers 5723, C.E.P.R. Discussion Papers.
- Katrin Assenmacher-Wesche & Stefan Gerlach, 2006. "Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland," Working Papers 2006-05, Swiss National Bank.
- Patrick M. Crowley, 2007. "A Guide To Wavelets For Economists ," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 207-267, 04.
- 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.
- António Rua & Luís Catela Nunes, 2009.
"International comovement of stock market returns: a wavelet analysis,"
w200904, Banco de Portugal, Economics and Research Department.
- Rua, António & Nunes, Luís C., 2009. "International comovement of stock market returns: A wavelet analysis," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 632-639, September.
- George A. Kahn & Scott Benolkin, 2007. "The role of money in monetary policy: why do the Fed and ECB see it so differently?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-36.
- António Rua & Luís Catela Nunes, 2012.
"A wavelet-based assessment of market risk: The emerging markets case,"
w201203, Banco de Portugal, Economics and Research Department.
- Rua, António & Nunes, Luis C., 2012. "A wavelet-based assessment of market risk: The emerging markets case," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 84-92.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEE-NTDD).
If references are entirely missing, you can add them using this form.