If firms borrow working capital to finance production, then nominal interest rates have a direct influence on inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank...

We study the relationship between bank lending standards, loan growth and the business cycle in the euro area and the US within a vector error correciton model using Bayesian estimation methods. To deal with the short data series available for the euro area, we exploit information from the...

We analyze the relationship between M3 growth and inflation within an error correction framework including also the output gap, the 3-mo EURIBOR, and the 10-yr government bond yield. We find robust cointegration between money growth and inflation. Shocks in M3 growth account for up to 30% of the...