The link of the monetary indicator to future inflation in the Euro-area : a simulation experiment

by Jan Gottschalk and Stéphanie Stolz

We examine the indicator property of the monetary indicator for inflation. Using a P*-model, Svensson (2000) shows theoretically 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 Svensson'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 at the medium-term.

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Year of publication:	2001
Authors:	Gottschalk, Jan ; Stolz, Stéphanie Marie
Subject:	Simulation \| Inflation \| Monetärer Indikator \| Monetary indicator \| Theorie \| Theory \| EU-Staaten \| EU countries \| Eurozone \| Euro area \| Prognoseverfahren \| Forecasting model \| Preisniveau \| Price level

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