Bond market inflation expectations and longer-term trends in broad monetary growth and inflation in industrial countries, 1880-2001

William G. Dewald

No 253, Working Paper Series from European Central Bank

Abstract: Annual data for thirteen countries revealed three long up trends and down trends in inflation that were matched by growth rates in M2 and nominal GDP but not real GDP in each country and cross-country averages. Inflationary expectations as estimated by bond rates less real growth trends indicated little inflation expectation until the 1960s. Central banks had credibility to keep inflation low even during wartime. It was lost as inflation rose in the 1970s and regained only as inflation fell subsequently. Although relationships with annual data were not as reliable as with ten-year averages, annual inflation was significantly related to annual M2 growth and inflationary expectations which should not be ignored in central bank decision making. JEL Classification: E3, E40, E50, N10

Keywords: central bank; History; inflation; interest rates; money; money and credit (search for similar items in EconPapers)
Date: 2003-09
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Citations: View citations in EconPapers (9)

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