Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/274603 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 3/2023
Publisher: 
Örebro University School of Business, Örebro
Abstract: 
In this paper, we add new evidence to a long-debated macroeconomic question, namely whether money growth has predictive power for inflation or, put differently, whether money growth Granger causes inflation. We use a historical dataset - consisting of annual Swedish data on money growth and inflation ranging from 1620 to 2021 - and employ state-of-the-art Bayesian estimation methods. Specifically, we employ VAR models with drifting parameters and stochastic volatility which are used to conduct analysis both within- and outof-sample. Our results indicate that the within-sample analysis - based on marginal likelihoods - provides strong evidence in favour of money growth Granger causing inflation. This strong evidence is, however, not reflected in our out-of-sample analysis, as it does not translate into a corresponding improvement in forecast accuracy.
Subjects: 
Time-varying parameters
Stochastic volatility
Out-of-sample forecasts
JEL: 
E31
E37
E47
E51
N13
Document Type: 
Working Paper

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