Abstract
Abstract It is a well-established fact in monetary economics that money and credit developments may affect consumer price inflation directly as well as indirectly via changes in asset prices, while at the same time asset price fluctuations can independently affect monetary and real developments. This has led to proposals to assign a more prominent role to asset prices in central bank’s toolkit of leading indicators for future developments in consumer price inflation. In this study, we examine, in the context of reduced-form inflation equations, the importance of different variables (including standard explanatory variables) as well as some specific asset price variables (i.e., the changes in housing and equity prices, a yield spread and oil prices). Against this background, we make use of a panel approach, covering data for 17 industrialised countries and the euro area. Three main results emerge out of our analysis. First, a standard framework explaining current inflation by (lagged) developments in infla...
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