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Does Global Liquidity Help to Forecast U.S. Inflation?


  • We are grateful to the editor, Masao Ogaki, two anonymous referees, Luca Benati, and Michele Lenza for very useful comments and suggestions. The views expressed in this paper are those of the authors, and do not necessarily reflect those of the Central Bank and Financial Services Authority of Ireland or the Bank of England.


We construct a measure of global liquidity using the growth rates of broad money for the G7 economies. Global liquidity produces forecasts of U.S. inflation that are significantly more accurate than the forecasts based on U.S. money growth, Phillips curve, and autoregressive and moving average models. The marginal predictive power of global liquidity is strong at 3-year horizons. Results are robust to alternative measures of inflation.