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Maintaining Low Inflation: Money, Interest Rates, and Policy Stance

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  • Dr. Samuel Reynard

Abstract

This paper examines the usefulness of considering monetary aggregates when assessing monetary policy stance, and contrasts monetary analysis to the current mainstream monetary policy analysis. Monetary developments, unlike interest rate stance measures, are shown to provide quantitative information on subsequent price levels. Moreover, ignoring money and focusing on interest rates and real activity measures neglects crucial information as short-term velocity movements are fully part of the monetary policy transmission process. The analysis also sheds light on the recent change in inflation volatility and persistence as well as on the Phillips curve flattening. The empirical analysis is based on US data since the 1960s as well as euro area and Swiss data since the 1970s.

Suggested Citation

  • Dr. Samuel Reynard, 2007. "Maintaining Low Inflation: Money, Interest Rates, and Policy Stance," Working Papers 2007-05, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2007-05
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    More about this item

    Keywords

    Monetary policy; Monetary aggregates; Inflation; Output; Taylor rule; Equilibrium interest rate;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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