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The role of monetary aggregates in the policy analysis of the swiss national bank

Swiss Journal of Economics and Statistics volume 146, pages 221–253 (2010)Cite this article

Summary

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.

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Authors and Affiliations

  1. Swiss Institute for International Economics and Applied Economic Research (SIAW-HSG), Leopoldina and CESifo, University of St. Gallen, Switzerland

    Gebhard Kirchgässner

  2. University of St. Gallen, SIAW-HSG, Bodanstrasse 8, CH-9000, St. Gallen, Switzerland

    Gebhard Kirchgässner

  3. Freie Universität Berlin and SIAW-HSG, Germany

    Jürgen Wolters

  4. Freie Universität Berlin, Institute of Statistics and Econometrics, Boltzmannstrasse 20, D-14195, Berlin, Germany

    Jürgen Wolters

Authors
  1. Gebhard Kirchgässner
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  2. Jürgen Wolters
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Correspondence to Gebhard Kirchgässner.

Additional information

We thank the Swiss National Bank for providing the data, and Sylvia Kaufmann (Austrian National Bank) as well as Samuel Reynard (Swiss National Bank) for helpful comments and suggestions.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Kirchgässner, G., Wolters, J. The role of monetary aggregates in the policy analysis of the swiss national bank. Swiss J Economics Statistics 146, 221–253 (2010). https://doi.org/10.1007/BF03399304

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