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Does stock market uncertainty impair the use of monetary indicators in the euro area?

[journal article]

Berben, Robert-Paul

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-239016

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Abstract The relationship between monetary indicators and inflation is ussually assumed to be linear, implying that looser monetary conditions always signal an increase in inflation. Recently, money growth in the euro area surged while inflation remained comparatively subdued. This seems at variance with linearity. At the same time, stock market uncertainty peaked, suggesting that part of the money growth resulted from portfolio adjustment and was hence non-inflationary. We employ a threshold regression model to verify the claim that the impact of monetary indicators on future inflation varies conditional on stock price volatility. We show that there is limited evidence to support this claim. On the other hand, our results indicate that stock market data may contain useful information regarding future inflation.
Document language English
Publication Year 2006
Page/Pages p. 13-23
Journal Applied Economics, 39 (2006) 1
DOI http://dx.doi.org/10.1080/00036840600903436
Status Postprint; reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)
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