Does Money Lead Inflation in the Euro Area?

52 Pages Posted: 24 Feb 2003

Date Written: May 2001


This paper investigates the properties of monetary and credit aggregates as indicators for future price developments in the euro area. The forecasting performance of models including indicators based on money and credit is assessed in a simulated out-of-sample forecasting exercise for forecast horizons varying from one quarter to three years ahead. The performance of these models is compared with that of models which include indicators based on financial markets, real activity, the labour market and various cost and price measures. The results support the idea that monetary and credit aggregates provide significant and independent information for future price developments in the euro area, especially at medium term horizons.

Keywords: euro area, inflation, leading indicators, money, P-Star

JEL Classification: E31, E40, C32

Suggested Citation

Nicoletti Altimari, Sergio, Does Money Lead Inflation in the Euro Area? (May 2001). Available at SSRN: or

Sergio Nicoletti Altimari (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

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