A money-based indicator for deflation risk

Gianni Amisano, Roberta Colavecchio and Gabriel Fagan ()

No 201403, Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics

Abstract: We employ a money-based early warning model in order to analyse the risk of a low inflation regime in the euro area, Japan and the US. The model specification allows for three different inflation regimes: Low, Medium and High inflation, while state transition probabilities vary over time as a function of monetary variables. Using Bayesian techniques, we estimate the model with data from the early 1970s up to the present. Our analysis suggests that the risks of a Low inflation regime in the euro area have been increasing in the course of the last six quarters of the sample; moreover, money growth appears to play a significant role in the assessment of such risks. Evidence for Japan and the US, on the other hand, shows that the inclusion of a monetary indicator variable does not substantially change the assessment of the risk of a Low inflation regime in either of the two countries.

Keywords: Money growth; deflation; inflation regimes; Markov Switching models; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 C53 E31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014-04
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_3_2014.pdf First version, 2014 (application/pdf)

Related works:
Working Paper: A money-based indicator for deflation risk (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hep:macppr:201403

Access Statistics for this paper

More papers in Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics Contact information at EDIRC.
Bibliographic data for series maintained by Ulrich Fritsche ( this e-mail address is bad, please contact ).