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Money growth and inflation in the euro area: a time-frequency view

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  • António Rua

Abstract

This 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.

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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201122.

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Date of creation: 2011
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Handle: RePEc:ptu:wpaper:w201122

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Cited by:
  1. Gallegati, Marco & Ramsey, James B. & Semmler, Willi, 2014. "Interest rate spreads and output: A time scale decomposition analysis using wavelets," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 283-290.
  2. 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.
  3. Luís Aguiar-Conraria & Pedro Magalhães & Maria Soares, 2013. "The nationalization of electoral cycles in the United States: a wavelet analysis," Public Choice, Springer, vol. 156(3), pages 387-408, September.

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