Maintaining low inflation: money, interest rates, and policy stance

Samuel Reynard

No 756, Working Paper Series from European Central Bank

Abstract: This paper presents a systematic empirical relationship between money and subsequent prices and output, using US, euro area and Swiss data since the 1960-70s. Monetary developments, unlike interest rate stance measures, are shown to provide qualitative and quantitative information on subsequent inflation. The usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short-term interest rates and real activity measures. The analysis sheds light on the recent change in inflation volatility and persistence as well as on the Phillips curve flattening, and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates. JEL Classification: E52, E58, E41, E3

Keywords: Equilibrium interest rate; inflation; monetary aggregates; monetary policy; Output; Taylor rule (search for similar items in EconPapers)
Date: 2007-05
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Citations: View citations in EconPapers (79)

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Related works:
Journal Article: Maintaining low inflation: Money, interest rates, and policy stance (2007)
Working Paper: Maintaining Low Inflation: Money, Interest Rates, and Policy Stance (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007756

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