The money-inflation nexus revisited

Leopold Ringwald () and Thomas O. Zörner ()
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Leopold Ringwald: Department of Economics, Vienna University of Economics and Business
Thomas O. Zörner: Department of Economics, Vienna University of Economics and Business
Authors registered in the RePEc Author Service: Thomas O. Zoerner

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: This paper proposes a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach on quarterly data from the US, the UK and Canada and are able to identify well-known, high inflation periods in the samples. Moreover, our results suggest that the role of money growth is specific to the economy under scrutiny. Finally, we analyse a variety of different model specifications and are able to confirm that adjusted money growth still has leading indicator properties on inflation regimes.

Keywords: Money-inflation link; Nonlinear modeling; Bayesian inference; LSTAR-SV model (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E51 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-ecm, nep-mac and nep-mon
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Working Paper: The money-inflation nexus revisited (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwwuw:wuwp310

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