DOES MONEY MATTER FOR INFLATION IN THE EURO AREA?

Sylvia Kaufmann and Peter Kugler

Contemporary Economic Policy, 2008, vol. 26, issue 4, 590-606

Abstract: We analyze the relationship between M3 growth and inflation within an error correction framework including also the output gap, the 3‐mo EURIBOR, and the 10‐yr government bond yield. We find robust cointegration between money growth and inflation. Shocks in M3 growth account for up to 30% of the inflation forecast error variance, while the effects of output gap and interest rate shocks are mainly transitory. Significantly different dynamics are found during periods at the end of the seventies and beginning of the eighties when interest rate and inflation rate levels were high and real money growth decreasing. (JEL C32, E31, E41)

Date: 2008
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https://doi.org/10.1111/j.1465-7287.2008.00113.x

Related works:
Working Paper: Does Money Matter for Inflation in the Euro Area? (2005)
Working Paper: Does Money Matter for Inflation in the Euro Area? (2005)
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