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A Two-Pillar Phillips Curve for Switzerland

  • Petra Gerlach-Kristen

Historically, money growth has played an important role in Swiss monetary policy, until 1999 as a target and from 2000 onwards as an indicator variable. Since the new policy framework focusses on an inflation forecast, the question arises how useful money growth is for predicting future price developments. Using Swiss data, this paper estimates a model first proposed by Gerlach (2004) for the euro area that integrates money growth in an inflation forecasting equation. This "two-pillar" Phillips curve suggests that the low-frequency component of money growth, alongside current inflation and the output gap, helps predict future inflation. These results are confirmed by an alternative money-augmented Phillips curve proposed by Neumann (2003).

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Paper provided by Swiss National Bank in its series Working Papers with number 2006-09.

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Length: 41 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:snb:snbwpa:2006-09
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  1. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
  2. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  3. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
  4. Katrin Assenmacher-Wesche & M. Hashem Pesaran, 2009. "A VECX* model of the Swiss economy," Economic Studies 2009-06, Swiss National Bank.
  5. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Money growth, output gaps and inflation at low and high frequency: Spectral estimates for Switzerland," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 411-435, February.
  6. Samuel Reynard, 2006. "Money and the Great Disinflation," Working Papers 2006-07, Swiss National Bank.
  7. Andreas M. Fischer & Michel Peytrignet, 1990. "Are Larger Monetary Aggregates Interesting? Some Exploratory Evidence for Switzerland Using Feedback Models," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 126(IV), pages 505-520, December.
  8. Ernst Baltensperger & Thomas Jordan & Marcel Savioz, 2001. "The demand for M3 and inflation forecasts: An empirical analysis for Switzerland," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(2), pages 244-272, June.
  9. Wyplosz, Charles, 2001. "Do We Know How Low Inflation Should Be?," CEPR Discussion Papers 2722, C.E.P.R. Discussion Papers.
  10. Stefan Gerlach & Katrin Assenmacher-Wesche, 2006. "Interpreting Euro area inflation at high and low frequencies," BIS Working Papers 195, Bank for International Settlements.
  11. Timothy Cogley, 1998. "A simple adaptive measure of core inflation," Working Papers in Applied Economic Theory 98-06, Federal Reserve Bank of San Francisco.
  12. Albert Jaeger, 2003. "The ECB'S Money Pillar; An Assessment," IMF Working Papers 03/82, International Monetary Fund.
  13. Markus Knell & Helmut Stix, 2004. "Three Decades of Money Demand Studies. Some Differences and Remarkable Similarities," Working Papers 88, Oesterreichische Nationalbank (Austrian Central Bank).
  14. Nicoletti-Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 0063, European Central Bank.
  15. Bruggeman, Annick & Camba-Méndez, Gonzalo & Fischer, Björn & Sousa, João, 2005. "Structural filters for monetary analysis: the inflationary movements of money in the euro area," Working Paper Series 0470, European Central Bank.
  16. Fischer, Andreas M, 1993. "Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 248-58, May.
  17. Gerlach, Stefan, 2003. "The ECB's Two Pillars," CEPR Discussion Papers 3689, C.E.P.R. Discussion Papers.
  18. Sergio Rossi, 2001. "Money and Inflation," Books, Edward Elgar, number 2571, March.
  19. Thomas Laubach & Adam Posen, 1997. "Some comparative evidence on the effectiveness of inflation targeting," Research Paper 9714, Federal Reserve Bank of New York.
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