The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank

33 Pages Posted: 1 Feb 2010

See all articles by Gebhard Kirchgässner

Gebhard Kirchgässner

Universität St. Gallen; CESifo (Center for Economic Studies and Ifo Institute)

Jürgen Wolters

Free University of Berlin (FUB)

Date Written: January 2010

Abstract

Using Swiss data from 1983 to 2008, this paper investigates whether growth rates of the different measures of the quantity of money and or excess money can be used to forecast inflation. After a preliminary data analysis, money demand relations are specified, estimated and tested. Then, employing error correction models, measures of excess money are derived. Using recursive estimates, indicator properties of monetary aggregates for inflation are assessed for the period from 2000 onwards, with time horizons of one, two, and three years. In these calculations, M2 and M3 clearly outperform M1, and excess money is generally a better predictor than the quantity of money. Taking into account also the most (available) recent observations that represent the first three quarters of the economic crisis, the money demand function of M3 remains stable while the one for M2 is strongly influenced by these three observations. While in both cases forecasts for 2010 show inflation rates inside the target zone between zero and two percent, and the same holds for forecasts based on M3 for 2011, forecasts based on M2 provide evidence that the upper limit of this zone might be violated in 2011.

Keywords: stability of money demand, monetary aggregates and inflation

JEL Classification: E41, E52

Suggested Citation

Kirchgaessner, Gebhard and Wolters, Jürgen, The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank (January 2010). CESifo Working Paper Series No. 2928, Available at SSRN: https://ssrn.com/abstract=1545744

Gebhard Kirchgaessner (Contact Author)

Universität St. Gallen ( email )

SIAW, Bodanstrasse 8
CH-9000 St.Gallen
Switzerland
+41 71 224 23 47 (Phone)
+41 71 224 22 98 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jürgen Wolters

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
D-10785 Berlin, Berlin 14195
Germany
+49-30-838-2014 (Phone)
+49-30-838-4142 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
91
Abstract Views
704
rank
346,400
PlumX Metrics