Thursday, October 25, 2007

FED and ECB on money (fg)

Well, again. I found an article of G. Kahn and S. Benolkin on the role of money as indicator/instrument for monetary policy in the policy-decision-making process of the FED and the ECB. While the authors permit money to be the determinant for long-run inflation, they argue that the two central banks share different views about the role of money because money serves as indicator for inflation only in the euro zone. They show that
  • money and inflation are better correlated in the euro zone than in the US.
  • velocity in the euro zone is much more stable.
  • money is a better predictor for the euro zone.