The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank
Journal
Schweizerische Zeitschrift für Volkswirtschaft und Statistik
ISSN
0303-9692
Type
journal article
Date Issued
2010-06
Author(s)
Abstract
Using Swiss data from 1983 to 2008, this paper investigates whether growth rates of the different measures of the quantity of money and or excess money can be used to forecast inflation. After a preliminary data analysis, money demand relations are specified, estimated and tested. Then, employing error correction models, measures of excess money are derived. Using recursive estimates, indicator properties of monetary aggregates for inflation are assessed for the period from 2000 onwards, with time horizons of one, two, and three years. In these calculations, M2 and M3 clearly outperform M1, and excess money is generally a better predictor than the quantity of money. Taking into account also the most (available) recent observations that represent the first three quarters of the economic crisis, the money demand function of M3 remains stable while the one for M2 is strongly influenced by these three observations. While in both cases forecasts for 2010 show inflation rates inside the target zone between zero and two percent, and the same holds for forecasts based on M3 for 2011, forecasts based on M2 provide evidence that the upper limit of this zone might be violated in 2011.
Language
English
Keywords
Stability of Money Demand
Monetary Aggregates and Inflation
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Peter Lang
Publisher place
Bern
Volume
146
Number
1
Start page
221
End page
253
Pages
33
Subject(s)
Eprints ID
71247