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Does global liquidity help to forecast US inflation?

  • D'Agostino, Antonello

    (Central Bank and Financial Services Authority of Ireland)

  • Surico, Paolo

    (Bank of England and University of Bari)

We construct a measure of global liquidity using the growth rates of broad money for the G7 economies. Global liquidity produces forecasts of US inflation that are significantly more accurate than the forecasts based on US money growth, Phillips curve, autoregressive and moving average models. The marginal predictive power of global liquidity is strong at three years horizons. Results are robust to alternative measures of inflation.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 10/RT/07.

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Length: 15 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:cbi:wpaper:10/rt/07
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  1. Lucrezia Reichlin & Domenico Giannone & Luca Sala, . "Monetary policy in real time," ULB Institutional Repository 2013/10177, ULB -- Universite Libre de Bruxelles.
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  7. Sergio Rossi, 2001. "Money and Inflation," Books, Edward Elgar, number 2571, March.
  8. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
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  11. 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.
  12. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc.
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