The money-inflation nexus revisited

Leopold Ringwald, Thomas Zörner

Publication: Working/Discussion PaperWU Working Paper

118 Downloads (Pure)

Abstract

This paper proposes a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach on quarterly data from the US, the UK and Canada and are able to identify well-known, high inflation periods in the samples. Moreover, our results suggest that the role of money growth is specific to the economy under scrutiny. Finally, we analyse a variety of different model specifications and are able to confirm that adjusted money growth still has leading indicator properties on inflation regimes.
Original languageEnglish
Number of pages51
DOIs
Publication statusPublished - 2021

Publication series

SeriesDepartment of Economics Working Paper Series
Number310

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 101026 Time series analysis
  • 502025 Econometrics
  • 502047 Economic theory
  • 502018 Macroeconomics

WU Working Paper Series

  • Department of Economics Working Paper Series

Cite this