The Relationship between Monetary Aggregates and Inflation – the Case of the Czech Republic

Stanislava Hronová, Richard Hindls, Luboš Marek
Statistika, 103(3): 262–276
https://doi.org/10.54694/stat.2023.14
 
Abstract
Based on empirical data, this paper attempts modelling, in general terms, the relationship between money supply and inflation, i.e., the relationship between the inflation rate and monetary aggregates. Our basic idea is to estimate time-shift parameters and, subsequently, a leading indicator that would provide information on whether and with what delay changes in the money supply will be reflected in the price level evolution. The aim of the paper is to formulate and, on the basis of the data, to confirm or refute the hypothesis that changes in the value of monetary aggregates imply changes in the inflation rate and, therefore, whether or not monetary aggregates are certain indicators signalling further evolution of the inflation rate. Monthly data for the Czech Republic from the years 2002–2022 have been used to model and test our hypotheses. The analysis has failed to show a statistically significant relationship between the individual monetary aggregates  and the inflation rate.

Keywords
Consumer price index, monetary aggregates, time lag, regression dynamic model, estimation of dependence intensity at a given lag