Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States

30 Pages Posted: 3 Nov 2009

See all articles by Aaron N. Mehrotra

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Tomas Slacik

Austrian National Bank - Foreign Research Division

Date Written: October 9, 2009

Abstract

We evaluate the monetary determinants of inflation in the Czech Republic, Hungary, Poland and Slovakia by using the McCallum rule for money supply. The deviation of actual money growth from the rule is included in the estimation of Phillips curves for the four economies by Bayesian model averaging. We find that money provides information about price developments over a horizon of ten quarters ahead, albeit the estimates are in most cases rather imprecise. Moreover, the effect of excessive monetary growth on inflation is mixed: It is positive for Poland and Slovakia, but negative for the Czech Republic and Hungary. Nevertheless, these results suggest that money does provide information about future inflation and that a McCallum rule could potentially be used in the future as an additional indicator of the monetary policy stance once the precision of the estimation improves with more data available.

Keywords: determinants of inflation, McCallum rule, Phillips curve, Bayesian model averaging, Central and Eastern Europe

JEL Classification: C11, C22, E31, E52, O52

Suggested Citation

Mehrotra, Aaron N. and Slacik, Tomas, Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States (October 9, 2009). BOFIT Discussion Paper No. 18/2009, Available at SSRN: https://ssrn.com/abstract=1492119 or http://dx.doi.org/10.2139/ssrn.1492119

Aaron N. Mehrotra (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Tomas Slacik

Austrian National Bank - Foreign Research Division ( email )

Otto-Wagner-Platz 3
Vienna, A-1011
Austria

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

Paper statistics

Downloads
107
Abstract Views
680
rank
338,414
PlumX Metrics