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Does stock market uncertainty impair the use of monetary indicators in the euro area?
[journal article]
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 l... view more
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.... view less
Document language
English
Publication Year
2006
Page/Pages
p. 13-23
Journal
Applied Economics, 39 (2006) 1
DOI
https://doi.org/10.1080/00036840600903436
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)