Does Money Include Information for Prices in the Euro Area? / Enthält Geld Informationen für die Preisentwicklung im Eurowährungsgebiet?

Summary In this paper, the P-star framework is mainly used to examine the importance of money for future price movements in the euro area. Constructing the equilibrium price level, simple-sum M3 and different Divisia M3 aggregates are considered. In addition, nominal money changes are investigated in inflation equations. Adapting an in-sample analysis, Divisia aggregates are important for HICP development and to some extent for GDP deflator movement. The out-of-sample forecasting exercise presents evidence that simple-sum M3 includes more information for the HICP, whereas one of the Divisia aggregates helps to predict the future GDP deflator.