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Monetary Policy, Asset Price Inflation and Consumer Price Inflation

Andersson, Fredrik N G LU (2011) In Economics Bulletin 31(1). p.759-770
Abstract
The overall price level contains prices of everything purchased or purchasable (Fischer, 1911). The consumer price index only covers a small subset of all prices in the economy and since these prices are among the stickiest in the economy, this index may not fully capture the true rate of monetary inflation in the short run. Merging all price indices into one overall index has been rejected, not least for practical reasons. Issing (2003), though, argues that money growth can be interpreted as a proxy for the overall inflation rate; hence it is unnecessary to create a price index if the money growth rate can be used instead. This paper builds on Assenmacher-Wesche and Gerlach (2008a, b), and analyzes the relationship between money growth... (More)
The overall price level contains prices of everything purchased or purchasable (Fischer, 1911). The consumer price index only covers a small subset of all prices in the economy and since these prices are among the stickiest in the economy, this index may not fully capture the true rate of monetary inflation in the short run. Merging all price indices into one overall index has been rejected, not least for practical reasons. Issing (2003), though, argues that money growth can be interpreted as a proxy for the overall inflation rate; hence it is unnecessary to create a price index if the money growth rate can be used instead. This paper builds on Assenmacher-Wesche and Gerlach (2008a, b), and analyzes the relationship between money growth and different price indices such as the consumer price index, GDP deflator, share price index and house price index in eight developed countries. The results show that money growth is correlated with financial asset price inflation in the short, medium and long run. Real asset price inflation and money growth are correlated over the medium and long term and consumer inflation and money growth only over the long term. Since all movements in money growth, short term and long term, are associated with price changes, this paper concludes that money growth may serve as a proxy for the overall inflation rate. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
monetary policy, consumer price inflation, asset price inflation
in
Economics Bulletin
volume
31
issue
1
pages
759 - 770
publisher
Economics Bulletin
external identifiers
  • Scopus:79952328244
ISSN
1545-2921
language
English
LU publication?
yes
id
eca0185a-991c-47d9-928f-6e45431d0e49 (old id 1852906)
date added to LUP
2011-03-18 09:25:20
date last changed
2016-10-13 04:34:05
@misc{eca0185a-991c-47d9-928f-6e45431d0e49,
  abstract     = {The overall price level contains prices of everything purchased or purchasable (Fischer, 1911). The consumer price index only covers a small subset of all prices in the economy and since these prices are among the stickiest in the economy, this index may not fully capture the true rate of monetary inflation in the short run. Merging all price indices into one overall index has been rejected, not least for practical reasons. Issing (2003), though, argues that money growth can be interpreted as a proxy for the overall inflation rate; hence it is unnecessary to create a price index if the money growth rate can be used instead. This paper builds on Assenmacher-Wesche and Gerlach (2008a, b), and analyzes the relationship between money growth and different price indices such as the consumer price index, GDP deflator, share price index and house price index in eight developed countries. The results show that money growth is correlated with financial asset price inflation in the short, medium and long run. Real asset price inflation and money growth are correlated over the medium and long term and consumer inflation and money growth only over the long term. Since all movements in money growth, short term and long term, are associated with price changes, this paper concludes that money growth may serve as a proxy for the overall inflation rate.},
  author       = {Andersson, Fredrik N G},
  issn         = {1545-2921},
  keyword      = {monetary policy,consumer price inflation,asset price inflation},
  language     = {eng},
  number       = {1},
  pages        = {759--770},
  publisher    = {ARRAY(0x945b250)},
  series       = {Economics Bulletin},
  title        = {Monetary Policy, Asset Price Inflation and Consumer Price Inflation},
  volume       = {31},
  year         = {2011},
}