Does Money Help Predict Inflation? Central European Evidence

Roman Horvath, Czech National Bank and Charles University, Prague
Lubos Komarek, Czech National Bank
Filip Rozsypal, London School of Economics and Political Science

Abstract

This paper investigates the predictive ability of money for future inflation in the Czech Republic, Hungary, Poland and Slovakia. We find that money is informative for future inflation even after controlling for the lagged inflation and output gap in all our sample countries. Nevertheless, our pseudo out-of-sample forecasting exercise shows that money does not in general improve the inflation forecasts vis-à-vis some benchmark models such as the autoregressive process for inflation.