The money-inflation nexus revisited

Ringwald, Leopold and Zörner, Thomas O. ORCID: (2021) The money-inflation nexus revisited. Department of Economics Working Paper Series, 310. WU Vienna University of Economics and Business, Vienna.


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This paper proposes a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach on quarterly data from the US, the UK and Canada and are able to identify well-known, high inflation periods in the samples. Moreover, our results suggest that the role of money growth is specific to the economy under scrutiny. Finally, we analyse a variety of different model specifications and are able to confirm that adjusted money growth still has leading indicator properties on inflation regimes.

Item Type: Paper
Keywords: Money-inflation link, Nonlinear modeling, Bayesian inference, LSTAR-SV model
Classification Codes: JEL C11, C32, E31, E51
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 10 Mar 2021 11:32
Last Modified: 11 Mar 2021 08:42


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