Does Global Liquidity Help to Forecast US Inflation?
Journal of Money, Credit and Banking, Forthcoming
14 Pages Posted: 7 Dec 2007 Last revised: 12 Aug 2009
We construct a measure of global liquidity using the growth rates of broad money for the G7 economies. Global liquidity produces forecasts of US inflation that are significantly more accurate than the forecasts based on US money growth, Phillips curve, autoregressive and moving average models. The marginal predictive power of global liquidity is strong at three years horizons. Results are robust to alternative measures of inflation.
JEL Classification: E37, E47, C22, C53
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