Kiel Working Papers, Kiel Institute for World Economics
No 1057:
The Link of the Monetary Indicator to Future Inflation in the Euro Area, A Simulation Experiment
Jan Gottschalk and Stéphanie Stolz
Abstract: We examine the indicator property of the monetary
indicator for inflation. Using a P*-model, Svensson shows theoretically in
a recent paper that the relationship between these two variables is rather
tenuous. The present study employs empirical evidence on the relations in
his model to quantify its dynamics for the euro area. Moreover, we extend
SvenssonÂ’s analysis by considering different shocks and monetary regimes.
It becomes apparent that the system exhibits complicated dynamics and that
for most shocks and policy regimes the monetary indicator is not a leading
indicator of dangers to price stability in the medium term.
Keywords: Monetary, Targeting, Inflation, Targeting, Euro Area; (follow links to similar papers)
42 pages, July 2001
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