Does Money Matter for U.S. Inflation? Evidence from Bayesian VARs
International Monetary Fund, Mar 1, 2008 - Inflation (Finance) - 17 pages
We use Bayesian estimation techniques to investigate whether money growth Granger-causes inflation in the United States. We test for Granger-causality out-of-sample and find, perhaps surprisingly given recent theoretical arguments, that including money growth in simple VAR models of inflation does systematically improve out-of-sample forecasting accuracy. This holds for a long forecasting sample 1960-2005, as well for more recent subperiods, including the Volcker and Greenspan eras. However, the contribution of money to inflation forecasting accuracy is quantitatively limited and tends to be smaller in recent subperiods, in particular in models that also include information on real GDP growth and interest rates.
What people are saying - Write a review
We haven't found any reviews in the usual places.
Other editions - View all
11 12 Forecasting 12 Forecasting horizon 2VAR 3VAR 4VAR adding money growth addition Andres annual growth rates autoregressive bivariate BVAR model Business Cycle Christiano contribution of money covariance matrix different forecasting horizons dynamics ECB's Econometric Reviews Economic empirical estimated European Central Bank Federal Reserve System Figure Forecasting horizon quarters forecasting inflation Forecasting Models forecasting period forecasts evaluated fourvariate BVAR model full sample period Goodfriend Granger causality Growth and Inflation growth Granger-causes inflation Hofmann impulse response functions including money growth inflation and money inflation forecasting accuracy interest rate Journal of Econometrics Keynesian Model Litterman Macroeconomic McCallum model including money model of inflation monetary aggregates money and inflation money demand money growth Granger-causes NBER Working Paper panel Polan posterior distribution quantitative real GDP growth recent subperiods Reduction in RMSE relevant RMSE levels RMSEs for annual role of money Shown are RMSEs Stefan Gerlach univariate variables vector within-sample