Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States

Aaron Mehrotra and Tomas Slacik ()

Focus on European Economic Integration, 2009, issue 3, 6-21

Abstract: We evaluate the monetary determinants of inflation in the Czech Republic, Hungary, Poland and Slovakia by using the McCallum rule for money supply. The deviation of actual money growth from the rule is included in the estimation of Phillips curves for the four economies by Bayesian model averaging. We find that money provides information about price developments over a horizon of ten quarters ahead, albeit the estimates are in most cases rather imprecise. Moreover, the effect of excessive monetary growth on inflation is mixed: It is positive for Poland and Slovakia, but negative for the Czech Republic and Hungary. Nevertheless, these results suggest that money does provide information about future inflation and that a McCallum rule could potentially be used in the future as an additional indicator of the monetary policy stance once the precision of the estimation improves with more data available.

Keywords: Determinants of inflation; McCallum rule; Phillips curve; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: C11 C22 E31 E52 O52 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Working Paper: Evaluating inflation determinants with a money supply rule in four Central and Eastern European EU member states (2009)
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