Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82688
Authors: 
Berger, Helge
Österholm, Pär
Year of Publication: 
2007
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2007:30
Abstract: 
We use a mean-adjusted Bayesian VAR model as an out-of-sample forecasting tool to test whether money growth Granger-causes inflation in the euro area. Based on data from 1970 to 2006 and forecasting horizons of up to 12 quarters, there is surprisingly strong evidence that including money improves forecasting accuracy. The results are very robust with regard to alternative treatments of priors and sample periods. That said, there is also reason not to overemphasize the role of money. The predictive power of money growth for inflation is substantially lower in more recent sample periods compared to the 1970s and 1980s. This cautions against using money-based inflation models anchored in very long samples for policy advice.
Subjects: 
Granger Causality
Monetary Aggregates
Monetary Policy
European Central Bank
JEL: 
E47
E52
E58
Document Type: 
Working Paper

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