The ECB's Two Pillars
Year: 2002
Type: preprint
Abstract: This Paper suggests a formal interpretation of the ECB’s two-pillar framework for monetary policy. I decompose inflation in the euro area into high- and low-frequency (or short-run and medium/long-run) components, which are correlated with monetary growth and the output gap, respectively. I proceed to propose and estimate a ‘two-pillar’ Phillips curve that assumes that money causes prices. While the model fits well and the causality assumption seems compatible with the 1980-90 data, there appears to be reverse causality from prices to money in the 1991-2001 period, which would invalidate my model.
Source: SSRN Electronic Journal
Author: Stefan Gerlach
Institutions: Central Bank of Ireland, Centre for Economic Policy Research
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1559272872