Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78105
Authors: 
Schreiber, Sven
Year of Publication: 
2013
Series/Report no.: 
School of Business & Economics, Discussion Paper: Economics, Freie Universität Berlin 2013/10
Abstract: 
Short answer: It helps a lot when other important variables are excluded from the information set. Longer answer: We revisit claims in the literature that money growth is Granger-causal for inflation at low frequencies. Applying frequency-specific tests in a comprehensive system setup for euro-area data we consider various theoretical predictors of inflation. A general-to-specific testing strategy reveals a recursive structure where only the unemployment rate and long-term interest rates are directly Granger-causal for low-frequency inflation movements, and all variables affect money growth. We therefore interpret opposite results from bivariate inflation/money growth systems as spurious due to omittedvariable biases. We also analyze the resulting four-dimensional system in a cointegration framework and find structural changes in the long-run adjustment behavior, which do not affect the main conclusions, however.
Subjects: 
money growth
granger causality
quantity theory
unemployment
JEL: 
E31
E40
Document Type: 
Working Paper

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