Maintaining low inflation: Money, interest rates, and policy stance |
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Authors: | Samuel Reynard |
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Institution: | Swiss National Bank, Research Unit, Boersenstrasse 15, 8022 Zurich, Switzerland |
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Abstract: | This paper presents a systematic empirical relationship between money and subsequent prices and output, using US, euro area and Swiss data since the 1960-1970s. Monetary developments, unlike interest rate stance measures, are shown to provide qualitative and quantitative information on subsequent inflation. The usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short-term interest rates and real activity measures. The analysis sheds light on the recent change in inflation volatility and persistence as well as on the Phillips curve flattening, and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates. |
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Keywords: | E52 E58 E41 E3 |
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