Title: Money and price developments in a historical timescale perspective: Implications for monetary analysis
Authors: Marco Gallegati - Polytechnic University of Marche (Italy) [presenting]
Michele Fratianni - Indiana University (United States)
Federico Giri - Polytechnic University of Marche (Italy)
Abstract: The aim is to deepen monetary analysis by providing greater insight into the association between trends in monetary growth and inflation using wavelet exploratory analysis. Several application of wavelet analysis to the money-inflation relationship have been recently provided, but no one of them has used a dataset covering a long time span, which is essential when examining a long-run time-varying relationship. A historical dataset developed previously allows the investigation of the relationship between money growth and inflation for several developed countries over the period 1870-2011, thus covering different monetary policy regimes, periods characterized by high and low inflation level and volatility, and periods of money demand instability. CWT tools such as the wavelet coherence and phase analysis allows to explore the money growth-inflation relationship within a unified framework where, for each frequency band, we can study whether co-movements in money growth and inflation have become stronger or weaker through time and whether there have been changes in the lead-lag patterns between the two variables. In particular, by detecting the specific frequency bands where the long-run link between money growth and inflation are most significant we can identify a measure of core or underlying monetary growth with the ability to enhance the operativeness of monetary developments for the conduct of monetary policy aiming at price stability.