Interpreting Euro Area Inflation at High and Low Frequencies

40 Pages Posted: 20 Sep 2007

See all articles by Katrin Assenmacher

Katrin Assenmacher

Swiss National Bank

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2006

Abstract

Several authors have recently interpreted the ECB's two-pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands. The ECB has publicly supported this understanding of the framework. This paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions, which allow for a natural definition of the short and long run in terms of specific frequency bands, and causality tests in the frequency domain. The main finding is that variations in inflation are well explained by low-frequency movements of money and real income growth and high-frequency fluctuations of the output gap.

Keywords: spectral regression, frequency domain, quantity theory, inflation, money growth

JEL Classification: C22, E3, E5

Suggested Citation

Assenmacher, Katrin and Gerlach, Stefan, Interpreting Euro Area Inflation at High and Low Frequencies (February 2006). BIS Working Paper No. 195, Available at SSRN: https://ssrn.com/abstract=891768 or http://dx.doi.org/10.2139/ssrn.891768

Katrin Assenmacher (Contact Author)

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland

Stefan Gerlach

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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