Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/28082
Authors: 
Berger, Helge
Stavrev, Emil
Year of Publication: 
2008
Series/Report no.: 
Diskussionsbeiträge des Fachbereichs Wirtschaftswissenschaft der Freien Universität Berlin 2008/15
Abstract: 
This paper contributes to the debate on the role of money in monetary policy by analyzing the information content of money in forecasting euro-area inflation. We compare the predictive performance within and among various classes of structural and empirical models in a consistent framework using Bayesian and other estimation techniques. We find that money contains relevant information for inflation in some model classes. Money-based New Keynesian DSGE models and VARs incorporating money perform better than their cashless counterparts. But there are also indications that the contribution of money has its limits. The marginal contribution of money to forecasting accuracy is often small, money adds little to dynamic factor models, and it worsens forecasting accuracy of partial equilibrium models. Finally, non-monetary models dominate monetary models in an all-out horserace.
Subjects: 
Information content of money
inflation forecasting
New Keynesian model
DSGE model
P* model
Two-pillar Phillips curve
VAR model
general dynamic factor model
Bayesian estimation
Euro area
JEL: 
C11
C30
E31
E40
ISBN: 
3938369868
Document Type: 
Working Paper

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