Money and Inflation in the Euro Area: A Case for Monetary Indicators?

Stefan Gerlach () and Lars Svensson

No 8025, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the relationship between inflation, output, money and interest rates in the euro area, using data spanning 1980 2000. The P* model is shown to have considerable empirical support. Thus, the price gap' or, equivalently, the real money gap' (the gap between current real balances and long-run equilibrium real balances), has substantial predictive power for future inflation. The real money gap contains more information about future inflation than the output gap and the Eurosystem's money-growth indicator (the gap between current M3 growth and a reference value). The results suggest that the Eurosystem's money-growth indicator is an inferior indicator of future inflation.

JEL-codes: E42 E52 (search for similar items in EconPapers)
Date: 2000-12
Note: ME
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Citations: View citations in EconPapers (67)

Published as Gerlach, Stefan and Lars E. O. Svensson. "Money And Inflation In The Euro Area: A Case For Monetary Indicators?," Journal of Monetary Economics, 2003, v50(8,Nov), 1649-1672.

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Journal Article: Money and inflation in the euro area: A case for monetary indicators? (2003)
Working Paper: Money and Inflation in the Euro-Area: A Case for Monetary Indicators? (2002)
Working Paper: Money and inflation in the Euro Area: A case for monetary indicators? (2001)
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