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Money growth and inflation in the euro area: a time-frequency view

António Rua

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This paper provides new insights on the relationship between money growth and inflation in the euro area over the last forty years. This highly relevant link for the European Central Bank monetary policy strategy is assessed using wavelet analysis. In particular, wavelet analysis allows to study simultaneously the relationship between money growth and inflation in the euro area at the frequency level and assess how it has changed over time. The findings indicate a stronger link between inflation and money growth at low frequencies over the whole sample period. At the typical business cycle frequency range the link is only present until the beginning of the 1980’s. Moreover, there seems to be a recent deterioration of the leading properties of money growth with respect to inflation in the euro area. These results highlight the importance of a regular assessment of the role of money growth in tracking inflation developments in the euro area since such relationship varies across frequencies and over time.

JEL-codes: C40 E30 E40 E50 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Money Growth and Inflation in the Euro Area: A Time-Frequency View (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201122

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