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Forecasting Inflation (and the Business Cycle?) with Monetary Aggregates

  • João Valle e Azevedo
  • Ana Pereira

We show how monetary aggregates can be usefully incorporated in forecasts of inflation. This requires fully disregarding the high-frequency fluctuations blurring the money/inflation relation, i.e., the projection of inflation onto monetary aggregates must be restricted to the low frequencies. Using the same tools, we show that money growth has (little) predictive power over output at business cycle frequencies.

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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201024.

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Date of creation: 2010
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Handle: RePEc:ptu:wpaper:w201024
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