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Does Money matter for U.S. Inflation? Evidence from Bayesian VARs

Author

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  • Helge Berger
  • Pär Österholm

Abstract

We use Bayesian estimation techniques to assess whether money growth Granger-causes inflation in the USA. We investigate the issue of Granger-causality out-of-sample and find that including money growth in simple VAR models of inflation does systematically improve out-of-sample forecasting accuracy. This holds for a long forecasting sample 1960--2005, as well for more recent subperiods, including the Volcker and Greenspan eras. However, the contribution of money to inflation forecasting accuracy is quantitatively limited and tends to be close to negligible in recent subperiods. (JEL codes: E47, E52, E58) Copyright The Author 2011. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Helge Berger & Pär Österholm, 2011. "Does Money matter for U.S. Inflation? Evidence from Bayesian VARs," CESifo Economic Studies, CESifo Group, vol. 57(3), pages 531-550, September.
    • Handle: RePEc:oup:cesifo:v:57:y:2011:i:3:p:531-550
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifr001
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    Cited by:

    1. International Monetary Fund, 2010. "Commodity Prices and Inflation in the Middle East, North Africa, and Central Asia," IMF Working Papers 2010/135, International Monetary Fund.
    2. Helge Berger & Sune Karlsson & Pär Österholm, 2023. "A note of caution on the relation between money growth and inflation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 479-496, November.
    3. Oliver Hossfeld, 2010. "US Money Demand, Monetary Overhang, and Inflation," Working Papers 2010.4, International Network for Economic Research - INFER.
    4. Markku Lanne & Jani Luoto & Henri Nyberg, 2014. "Is the Quantity Theory of Money Useful in Forecasting U.S. Inflation?," CREATES Research Papers 2014-26, Department of Economics and Business Economics, Aarhus University.
    5. Emil Stavrev & Helge Berger, 2012. "The information content of money in forecasting euro area inflation," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4055-4072, November.
    6. Shahid IQBAL & Maqbool H. SIAL, 2016. "Projections of Inflation Dynamics for Pakistan: GMDH Approach," Journal of Economics and Political Economy, KSP Journals, vol. 3(3), pages 536-559, September.

    More about this item

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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