1 Is M3 still a useful indicator of medium-term inflation in the EU-27?

The informational value of money growth for inflation policy in the European Union has been put into question. Different studies have found that money growth does not contain information that is not already present in other determinants of inflation, such as the output gap (Rudebusch and Svensson, 2002; Gerlach and Svensson, 2003, Gerlach, 2004). This paper uses the Gerlach and Svensson (2003) dataset and shows that money growth has significant informational content beyond that provided by the output gap, the real interest rate, cost shocks and other variables included in the “second pillar ” of the European Central Bank’s monetary strategy