Does Money Matter for U.S. Inflation? Evidence from Bayesian VARs

March 1, 2008

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Pär Österholm, and Helge Berger. Does Money Matter for U.S. Inflation? Evidence from Bayesian VARs, (USA: International Monetary Fund, 2008) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We use Bayesian estimation techniques to investigate whether money growth Granger-causes inflation in the United States. We test for Granger-causality out-of-sample and find, perhaps surprisingly given recent theoretical arguments, that including money growth in simple VAR models of inflation does systematically improve out-of-sample forecasting accuracy. This holds for a long forecasting sample 1960-2005, as well for more recent subperiods, including the Volcker and Greenspan eras. However, the contribution of money to inflation forecasting accuracy is quantitatively limited and tends to be smaller in recent subperiods, in particular in models that also include information on real GDP growth and interest rates.

Subject: Demand for money, Economic forecasting, Inflation, Monetary aggregates, Monetary base

Keywords: Interest rate, Money, Money growth, WP

Publication Details

Pages:

17
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/076
Stock No:

WPIEA2008076
ISBN:

9781451869385
ISSN:

1018-5941

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