Money and Swedish inflation

Analysing the role of money for Swedish inflation, we apply a single equation “P-Star” model and a structural VECM for the period of the late 1980s to the beginning of 2005. Against the background of theoretical and empirical considerations, we find that money – when measured by the “price gap” or, alternatively, the “money overhang” – had a statistically significant impact on future price movements. The results suggest that money might have to play a more prominent role in monetary policy making in Sweden compared with the status quo.