The ECB's Two Pillars

Stefan Gerlach ()

No 3689, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper suggests a formal interpretation of the ECB?s two-pillar framework for monetary policy. I decompose inflation in the euro area into high- and low-frequency (or short-run and medium/long-run) components, which are correlated with monetary growth and the output gap, respectively. I proceed to propose and estimate a ?two-pillar? Phillips curve that assumes that money causes prices. While the model fits well and the causality assumption seems compatible with the 1980-90 data, there appears to be reverse causality from prices to money in the 1991-2001 period, which would invalidate my model.

JEL-codes: E31 E42 E50 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (26)

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