Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland

33 Pages Posted: 17 Aug 2006

See all articles by Stefan Gerlach

Stefan Gerlach

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

Katrin Assenmacher

Swiss National Bank

Date Written: June 2006

Abstract

While monetary targeting has become increasingly rare, many central banks attach weight to money growth in setting interest rates. This raises the issue of how money can be combined with other variables, in particular the output gap, when analysing inflation. The Swiss National Bank emphasises that the indicators it uses to do so vary across forecasting horizons. While real indicators are employed for short-run forecasts, money growth is more important at longer horizons. Using band spectral regressions and causality tests in the frequency domain, we show that this interpretation of the inflation process fits the data well.

Keywords: Spectral regression, frequency domain, Phillips curve, quantity theory

JEL Classification: C22, E3, E5

Suggested Citation

Gerlach, Stefan and Assenmacher, Katrin, Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland (June 2006). CEPR Discussion Paper No. 5723, Available at SSRN: https://ssrn.com/abstract=924880

Stefan Gerlach (Contact Author)

Central Bank of Ireland ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katrin Assenmacher

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland

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