Money Growth and Inflation: evidence from a Markov Switching Bayesian VAR
We contribute to the empirical debate on the role of money in monetary policy by analysing the features of the relationship between money growth and inflation in a Bayesian Markov Switching framework for a set of four countries, the US, the UK, the Euro area and Japan, over an estimation period spanning from 1960 to 2012. We find that the relationship between money growth and inflation appears to be nonlinear, as our estimation results identify multiple inflation regimes displaying clear and diversified features; moreover, as part of the model's information set, money growth plays a determinant role in the allocation of regimes. We show that observing monetary developments does (slightly) improve the signal of entering a high inflation regime but the influence of money on such signal seems to be relevant mainly in the 70s and the early 80s, i.e. in periods featuring exceptionally high rates of inflation. Our evidence confi?rms that the relationship between money and inflation appears to be relatively weak during periods featuring low and stable inflation.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Web page: https://www.wiso.uni-hamburg.de/|
More information through EDIRC
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.:
- Amisano, Gianni & Giacomini, Raffaella, 2007.
"Comparing Density Forecasts via Weighted Likelihood Ratio Tests,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 25, pages 177-190, April.
- Gianni Amisano & Raffaella Giacomini, 2005. "Comparing Density Forecsts via Weighted Likelihood Ratio Tests," Working Papers ubs0504, University of Brescia, Department of Economics.
- Berger, Helge & Stavrev, Emil, 2008.
"The information content of money in forecasting Euro area inflation,"
2008/15, Free University Berlin, School of Business & Economics.
- 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.
- Emil Stavrev & Helge Berger, 2008. "The Information Content of Money in Forecasting Euro Area Inflation," IMF Working Papers 08/166, International Monetary Fund.
- Teles, Pedro & Uhlig, Harald, 2013.
"Is quantity theory still alive?,"
Working Paper Series
1605, European Central Bank.
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, March.
- Ralf Brueggemann & Helmut Luetkepohl & Massimiliano Marcellino, 2006.
"Forecasting Euro-Area Variables with German Pre-EMU Data,"
Economics Working Papers
ECO2006/30, European University Institute.
- Ralf Brüggemann & Helmut Lütkepohl & Massimiliano Marcellino, 2008. "Forecasting euro area variables with German pre-EMU data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(6), pages 465-481.
- Ralf Brüggemann & Helmut Lütkepohl & Massimiliano Marcellino, 2006. "Forecasting Euro-Area Variables with German Pre-EMU Data," SFB 649 Discussion Papers SFB649DP2006-065, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- John Geweke & Gianni Amisano, 2011.
"Hierarchical Markov normal mixture models with applications to financial asset returns,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 26(1), pages 1-29, January/F.
- Geweke, John & Amisano, Gianni, 2007. "Hierarchical Markov normal mixture models with applications to financial asset returns," Working Paper Series 0831, European Central Bank.
- John Geweke & Gianni Amisano, 2007. "Hierarchical Markov Normal Mixture Models with Applications to Financial Asset Returns," Working Papers 0705, University of Brescia, Department of Economics.
- Thomas J. Sargent & Paolo Surico, 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals," American Economic Review, American Economic Association, vol. 101(1), pages 109-28, February.
- 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.
- Sylvia Kaufmann & Peter Kugler, 2005.
"Does Money Matter for Inflation in the Euro Area?,"
103, Oesterreichische Nationalbank (Austrian Central Bank).
- De Santis, Roberto A., 2012. "Quantity theory is alive: the role of international portfolio shifts," Working Paper Series 1435, European Central Bank.
- Andreas Beyer & Jurgen A. Doornik & David F. Hendry, 2000. "Reconstructing Aggregate Euro-zone Data," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 613-624, November.
- D'Agostino, A & Surico, P, 2007.
"Does global liquidity help to forecast US inflation?,"
6283, University Library of Munich, Germany.
- Antonello D'Agostino & Paolo Surico, 2009. "Does Global Liquidity Help to Forecast U.S. Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 479-489, 03.
- D'Agostino, Antonello & Surico, Paolo, 2007. "Does global liquidity help to forecast US inflation?," Research Technical Papers 10/RT/07, Central Bank of Ireland.
- James H. Stock & Mark W. Watson, 2006.
"Why Has U.S. Inflation Become Harder to Forecast?,"
NBER Working Papers
12324, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:hep:macppr:201304. 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: (Ulrich Fritsche)
If references are entirely missing, you can add them using this form.