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Money and Inflation in the Euro-Area: A Case for Monetary Indicators?

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  • Gerlach, Stefan
  • Svensson, Lars E O

Abstract

This Paper examines inflation indicators for the euro area by studying the relationship between inflation, output, money and interest rates, using data spanning 1980-2001. The central finding is that both the output gap and the real money gap (the difference between the real money stock and the long-run equilibrium real money stock) contain considerable information regarding future inflation. In contrast, the Eurosystem’s money-growth indicator (the difference between nominal money growth and a reference value), the prominent ‘first pillar’ in its monetary strategy, contains little information about future inflation, and no information beyond that contained in the output and real money gaps. The predictive performance of the output gap has improved compared to that in a previous version of this Paper, most likely because of better estimation methods.

Suggested Citation

  • Gerlach, Stefan & Svensson, Lars E O, 2002. "Money and Inflation in the Euro-Area: A Case for Monetary Indicators?," CEPR Discussion Papers 3392, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3392
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    More about this item

    Keywords

    ECB; Eurosystem; Pstar;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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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