Money growth and inflation: a regime switching approach

Gianni Amisano and Gabriel Fagan ()

No 1207, Working Paper Series from European Central Bank

Abstract: We develop a time-varying transition probabilities Markov Switching model in which inflation is characterised by two regimes (high and low inflation). Using Bayesian techniques, we apply the model to the euro area, Germany, the US, the UK and Canada for data from the 1960s up to the present. Our estimates suggest that a smoothed measure of broad money growth, corrected for real-time estimates of trend velocity and potential output growth, has important leading indicator properties for switches between inflation regimes. Thus money growth provides an important early warning indicator for risks to price stability. JEL Classification: C11, C53, E31

Keywords: Bayesian inference; early warning; inflation regimes; markov switching model; money growth; time varying transition probabilities (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-eec, nep-mac and nep-mon
Note: 337895
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Money growth and inflation: A regime switching approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101207

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