Arbeitspapier

A money-based indicator for deflation risk

We employ a money-based early warning model in order to analyse the risk of a low inflation regime in the euro area, Japan and the US. The model specification allows for three different inflation regimes: Low, Medium and High inflation, while state transition probabilities vary over time as a function of monetary variables. Using Bayesian techniques, we estimate the model with data from the early 1970s up to the present. Our analysis suggests that the risks of a Low inflation regime in the euro area have been increasing in the course of the last six quarters of the sample; moreover, money growth appears to play a significant role in the assessment of such risks. Evidence for Japan and the US, on the other hand, shows that the inclusion of a monetary indicator variable does not substantially change the assessment of the risk of a Low inflation regime in either of the two countries.

Language
Englisch

Bibliographic citation
Series: DEP (Socioeconomics) Discussion Papers - Macroeconomics and Finance Series ; No. 3/2014

Classification
Wirtschaft
Bayesian Analysis: General
Forecasting Models; Simulation Methods
Price Level; Inflation; Deflation
Subject
Money growth
deflation
inflation regimes
Markov Switching models
Bayesian inference

Event
Geistige Schöpfung
(who)
Amisano, Gianni
Colavecchio, Roberta
Fagan, Gabriel
Event
Veröffentlichung
(who)
Hamburg University, Department Socioeconomics
(where)
Hamburg
(when)
2014

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Amisano, Gianni
  • Colavecchio, Roberta
  • Fagan, Gabriel
  • Hamburg University, Department Socioeconomics

Time of origin

  • 2014

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