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Does money lead inflation in the euro area?

  • Nicoletti-Altimari, Sergio
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    This paper investigates the properties of monetary and credit aggregates as indicators for future price developments in the euro area. The forecasting performance of models including indicators based on money and credit is assessed in a simulated out-of-sample forecasting exercise for forecast horizons varying from one quarter to three years ahead. The performance of these models is compared with that of models which include indicators based on financial markets, real activity, the labour market and various cost and price measures. The results support the idea that monetary and credit aggregates provide significant and independent information for future price developments in the euro area, especially at medium term horizons JEL Classification: E31, E40, C32

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    Paper provided by European Central Bank in its series Working Paper Series with number 0063.

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    Date of creation: May 2001
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    Handle: RePEc:ecb:ecbwps:20010063
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    1. Frank Browne & Gabriel Fagan & Jerome Henry, 2005. "Money Demand in EU Countries: A Survey," Macroeconomics 0503004, EconWPA.
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    5. Svensson, Lars, 1999. "Does the P* Model provide Any Rationale for Monetary Targeting?," Seminar Papers 671, Stockholm University, Institute for International Economic Studies.
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    8. 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.
    9. van Bergeijk, Peter A. G. & Berk, Jan Marc, 2000. "Is the yield curve a useful Information variable for the Eurosystem?," Working Paper Series 0011, European Central Bank.
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    12. Athanasios Orphanides & Richard Porter, 1998. "P* revisited: money-based inflation forecasts with a changing equilibrium velocity," Finance and Economics Discussion Series 1998-26, Board of Governors of the Federal Reserve System (U.S.).
    13. Angelini, Elena & Henry, Jérôme & Mestre, Ricardo, 2001. "Diffusion index-based inflation forecasts for the euro area," Working Paper Series 0061, European Central Bank.
    14. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
    15. 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.
    16. Massimiliano Marcellino & James H. Stock & Mark W. Watson, . "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    17. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
    18. Engert, Walter & Selody, Jack, 1998. "Uncertainty and Multiple Paradigms of the Transmission Mechanism," Working Papers 98-7, Bank of Canada.
    19. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
    20. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
    21. Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
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