In this article Lucas's (1980) filtering technique is used to extract the trend components from M3 growth and CPI inflation in Poland over the period 1996-2007. On the basis of correlations and graphical analysis three conclusions are reached regarding the relationship between the two series: (1) The correlations between money growth and inflation increase substantially as the filter suppresses the high-frequency components of the data, revealing an almost one-for-one relation between the trends. (2) Changes in the growth rate of M3 affect the rate of inflation after about a year, suggesting that the time lag is significantly shorter in Poland than in such developed countries as the US or the UK. (3) The pattern of Granger causality is univariate for both the filtered and unfiltered data, running from money to prices. The article closes with some remarks on the usefulness of the obtained results in the light of ongoing controversy over the use of monetary aggregates in monetary policy.
Financed by the National Centre for Research and Development under grant No. SP/I/1/77065/10 by the strategic scientific research and experimental development program:
SYNAT - “Interdisciplinary System for Interactive Scientific and Scientific-Technical Information”.