The Demand for M3 and Inflation Forecasts: An Empirical Analysis for Switzerland

This paper argues that money should continue to play an important role in monetary policy even if a central bank pursues a strategy based on inflation forecasts. Within the context of an error correction model, the paper delivers empirical evidence that both the growth rate of the monetary aggregate...

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Bibliographic Details
Published in:Review of world economics 2001-01, Vol.137 (2), p.244-272
Main Authors: Baltensperger, Ernst, Jordan, Thomas J., Savioz, Marcel R.
Format: Article
Language:English
Subjects:
Central banks
Demand for money
Economic forecasts
Economic indicators
Economic theory
Economics
Empirical research
Forecasting models
Global economy
Inflation
Inflation rates
Information content
Informational error correction
Interest rates
Monetary aggregates
Monetary policy
Money
Money demand
Statistical forecasts
Switzerland
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Summary:This paper argues that money should continue to play an important role in monetary policy even if a central bank pursues a strategy based on inflation forecasts. Within the context of an error correction model, the paper delivers empirical evidence that both the growth rate of the monetary aggregate M3 and the size of excess M3 incorporate useful information with regard to future inflation in Switzerland. This evidence strongly suggests that money should remain an important indicator for monetary policy.
ISSN:0043-2636
1610-2878
1610-2886
DOI:10.1007/BF02707265