The ECB's Two Pillars
This Paper suggests a formal interpretation of the ECB’s two-pillar framework for monetary policy. I decompose inflation in the euro area into high- and low-frequency (or short-run and medium/long-run) components, which are correlated with monetary growth and the output gap, respectively. I proceed to propose and estimate a ‘two-pillar’ Phillips curve that assumes that money causes prices. While the model fits well and the causality assumption seems compatible with the 1980-90 data, there appears to be reverse causality from prices to money in the 1991-2001 period, which would invalidate my model.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Jan 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Paul De Grauwe & Magdalena Polan, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," International Economics Working Papers Series wpie009, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
- Buiter, Willem H, 1984. "Granger-Causality and Policy Effectiveness," Economica, London School of Economics and Political Science, vol. 51(202), pages 151-62, May.
- Gabriel Fagan & JÊrÆme Henry, 1998. "Long run money demand in the EU: Evidence for area-wide aggregates," Empirical Economics, Springer, vol. 23(3), pages 483-506.
- Cogley, Timothy, 2002. "A Simple Adaptive Measure of Core Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 94-113, February.
- McCallum, Bennett T., 1984.
"On low-frequency estimates of long-run relationships in macroeconomics,"
Journal of Monetary Economics,
Elsevier, vol. 14(1), pages 3-14, July.
- Bennett T. McCallum, 1983. "On Low-Frequency Estimates of "Long-Run" Relationships in Macro- economics," NBER Working Papers 1162, National Bureau of Economic Research, Inc.
- Gunter Coenen & Juan Luis Vega, 2000.
"The Demand for M3 in the Euro Area,"
Econometric Society World Congress 2000 Contributed Papers
0976, Econometric Society.
- Thomas J. Sargent, 1982.
"The Ends of Four Big Inflations,"
in: Inflation: Causes and Effects, pages 41-98
National Bureau of Economic Research, Inc.
- Jeffrey C. Fuhrer, 1995.
"The [un]importance of forward-looking behavior in price specifications,"
95-6, Federal Reserve Bank of Boston.
- Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-50, August.
- Joaquim Vieira Ferreira Levy & Alessandro Calza & Dieter Gerdesmeier, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 01/179, International Monetary Fund.
- Claus Brand & Dieter Gerdesmeier & Barbara Roffia, 2002. "Estimating the trend of M3 income velocity underlying the reference value for monetary growth," Occasional Paper Series 03, European Central Bank.
- Lars E.O. Svensson & Stefan Gerlach, 2001.
"Money and inflation in the Euro Area: A case for monetary indicators?,"
BIS Working Papers
98, Bank for International Settlements.
- Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
- Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc.
- 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.
- Ben Bernanke & Frederic Mishkin, 1992.
"Central Bank Behavior and the Strategy of Monetary Policy: Observations From Six Industrialized Countries,"
NBER Working Papers
4082, National Bureau of Economic Research, Inc.
- Ben Bernanke & Frederic Mishkin, 1992. "Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 183-238 National Bureau of Economic Research, Inc.
- Granger, C. W. J., 1988. "Causality, cointegration, and control," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 551-559.
- Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
- Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
- Stefan Gerlach, 1995. "Testing the quantity theory using long-run averaged cross-country data," BIS Working Papers 31, Bank for International Settlements.
- Trecroci, Carmine & Vega, Juan Luis, 2000. "The information content of M3 for future inflation," Working Paper Series 0033, European Central Bank.
- Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
- repec:cup:cbooks:9780521788885 is not listed on IDEAS
- De Grauwe, Paul & Polan, Magdalena, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," CEPR Discussion Papers 2841, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3689. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.