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The ECB'S Money Pillar: An Assessment

  • Albert Jaeger
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    This paper discusses the case for a money pillar in the European Central Bank''s (ECB) monetary policy strategy. Time-series evidence for industrial countries based on frequency-domain and unobserved-components analysis suggests that money can play a useful role in gauging and constraining long-run risks to price stability. Moreover, the specter of asset price bubbles and some of the area''s institutional features, which may impart considerable persistence to area-wide inflation, caution against shifting to conventional inflation targeting. But the time series evidence also seems to point to a relatively loose connection between variations in nominal money growth and inflation in the short to medium run. As a consequence, effective communication of the ECB''s monetary policy decisions from the point of view of the present money pillar is likely to remain a challenging task.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/82.

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    Length: 32
    Date of creation: 01 Apr 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/82
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    1. von Hagen, Jürgen & Brückner, Matthias, 2001. "Monetary policy in unknown territory: The European Central Bank in the early years," ZEI Working Papers B 18-2001, ZEI - Center for European Integration Studies, University of Bonn.
    2. Rich, Georg, 2000. "Monetary Policy without Central Bank Money: A Swiss Perspective," International Finance, Wiley Blackwell, vol. 3(3), pages 439-69, November.
    3. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
    4. Alina Carare & Mark R. Stone, 2003. "Inflation Targeting Regimes," IMF Working Papers 03/9, International Monetary Fund.
    5. De Grauwe, Paul & Polan, Magdalena, 2001. "Is Inflation Always and Everywhere a Monetary Phenomenon?," CEPR Discussion Papers 2841, C.E.P.R. Discussion Papers.
    6. Lawrence J. Christiano & Massimo Rostagno, 2001. "Money Growth Monitoring and the Taylor Rule," NBER Working Papers 8539, National Bureau of Economic Research, Inc.
    7. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
    8. Douglas Laxton & Papa N’Diaye, 2002. "Monetary Policy Credibility and the Unemployment-Inflation Tradeoff: Some Evidence from Seventeen OECD Countries," Computing in Economics and Finance 2002 364, Society for Computational Economics.
    9. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    10. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
    11. repec:cup:cbooks:9780521783248 is not listed on IDEAS
    12. 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.
    13. 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.
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