Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153641
Authors: 
Amisano, Gianni
Fagan, Gabriel
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1207
Abstract: 
We develop a time-varying transition probabilities Markov Switching model in which inflation is characterised by two regimes (high and low inflation). Using Bayesian techniques, we apply the model to the euro area, Germany, the US, the UK and Canada for data from the 1960s up to the present. Our estimates suggest that a smoothed measure of broad money growth, corrected for real-time estimates of trend velocity and potential output growth, has important leading indicator properties for switches between inflation regimes. Thus money growth provides an important early warning indicator for risks to price stability.
Subjects: 
Bayesian inference
early warning
inflation regimes
Markov Switching model
money growth
time varying transition probabilities
JEL: 
C11
C53
E31
Document Type: 
Working Paper

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