Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/72628 
Year of Publication: 
2003
Series/Report no.: 
CFS Working Paper No. 2003/07
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
In this study, we perform a quantitative assessment of the role of money as an indicator variable for monetary policy in the euro area. We document the magnitude of revisions to euro area-wide data on output, prices, and money, and find that monetary aggregates have a potentially significant role in providing information about current real output. We then proceed to analyze the information content of money in a forward-looking model in which monetary policy is optimally determined subject to incomplete information about the true state of the economy. We show that monetary aggregates may have substantial information content in an environment with high variability of output measurement errors, low variability of money demand shocks, and a strong contemporaneous linkage between money demand and real output. As a practical matter, however, we conclude that money has fairly limited information content as an indicator of contemporaneous aggregate demand in the euro area.
Subjects: 
euro area
Kalman filter
macroeconomic modelling
measurement error
monetary policy rules
rational expectations
JEL: 
E31
E52
E58
E61
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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