Money Growth and Inflation: evidence from a Markov Switching Bayesian VAR

Gianni Amisano and Roberta Colavecchio

No 201304, Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics

Abstract: We contribute to the empirical debate on the role of money in monetary policy by analysing the features of the relationship between money growth and inflation in a Bayesian Markov Switching framework for a set of four countries, the US, the UK, the Euro area and Japan, over an estimation period spanning from 1960 to 2012. We find that the relationship between money growth and inflation appears to be nonlinear, as our estimation results identify multiple inflation regimes displaying clear and diversified features; moreover, as part of the model's information set, money growth plays a determinant role in the allocation of regimes. We show that observing monetary developments does (slightly) improve the signal of entering a high inflation regime but the influence of money on such signal seems to be relevant mainly in the 70s and the early 80s, i.e. in periods featuring exceptionally high rates of inflation. Our evidence confi?rms that the relationship between money and inflation appears to be relatively weak during periods featuring low and stable inflation.

Keywords: Money growth; infl?ation regimes; Markov Switching model; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 C53 E31 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2013-05
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_4_2013.pdf First version, 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hep:macppr:201304

Access Statistics for this paper

More papers in Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics Contact information at EDIRC.
Bibliographic data for series maintained by Ulrich Fritsche ( this e-mail address is bad, please contact ).