Working Paper: CEPR ID: DP6650
Authors: Katrin Assenmacher-Wesche; Stefan Gerlach; Toshitaka Sekine
Abstract: Recently, the Bank of Japan outlined a ?two perspectives? approach to the conduct of monetary policy that focuses on risks to price stability over different time horizons. Interpreting this as pertaining to different frequency bands, we use band spectrum regression to study the determination of inflation in Japan. We find that inflation is related to money growth and real output growth at low frequencies and the output gap at higher frequencies. Moreover, this relationship reflects Granger causality from money growth and the output gap to inflation in the relevant frequency bands.
Keywords: frequency domain; Phillips curve; quantity theory; spectral regression
JEL Codes: C22; E3; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money growth (O42) | inflation (E31) |
| output gap (E23) | inflation (E31) |
| money growth (O42) | inflation at low frequencies (E31) |
| output gap (E23) | inflation at higher frequencies (E31) |
| money growth and output growth at low frequencies (E19) | inflation (E31) |
| output gap at higher frequencies (E32) | inflation (E31) |