Does the “monetary” approach to monetary policymaking still make sense in the euro zone?

The ECB normally carries out two types of analysis to inform its monetary policy choices: an economic analysis (developments in the real economy, shocks) and a monetary analysis (in the ECB’s words, a “detailed analysis of monetary and credit developments with a view to assessing their implications for future inflation and economic growth”). But does the monetary analysis still make sense ? We examine whether there has been a correlation in the recent period in the euro zone between growth in the quantity of money (MO, M1, M2 ) and in credit on the one hand and real growth and inflation on the other. We find that: M1 is a leading indicator of real GDP; Credit and M2 are leading indicators of inflation. This suggests the monetary approach still makes sense in the euro zone .