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Monetary aggregates as indicators of economic activity in Canada: empirical evidence

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  • Pierre L. Siklos
  • Andrew G. Barton

Abstract

Empirical evidence linking monetary aggregates to variables such as inflation and economic growth has weakened over the past two decades. In this study we re-examine these relationships by creating composite monetary aggregates that switch among existing monetary aggregates, using quarterly data over the sample 1971-99. Overall, composite monetary aggregates appear to be useful in explaining or forecasting short-run movements in GDP growth and inflation. Also, the most successful composite monetary aggregates produce switch dates that overlap with the introduction of financial innovations. These subsequently prompted the Bank of Canada to revise or introduce new monetary aggregates.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 34 (2001)
Issue (Month): 1 (February)
Pages: 1-17

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Handle: RePEc:cje:issued:v:34:y:2001:i:1:p:1-17

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Cited by:
  1. Pons Novell, J., 2002. "Ciclo de la economía española y contenido informativo de los tipos de interés," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 20, pages 583-598, Diciembre.
  2. David Laidler, 2003. "Monetary Policy without Money: Hamlet without the Ghost," UWO Department of Economics Working Papers 20037, University of Western Ontario, Department of Economics.
  3. Abbas Valadkhani & Mohammad Alauddin, 2003. "Demand for M2 in Developing Countries: An Empirical Panel Investigation," School of Economics and Finance Discussion Papers and Working Papers Series 158, School of Economics and Finance, Queensland University of Technology.
  4. Michael Graff, 2005. "Abstract," The European Journal of Finance, Taylor & Francis Journals, vol. 11(3), pages 183-205.
  5. Valadkhani, Abbas, 2006. "What Determines the Demand for Money in the Asian-Pacific Countries? An Empirical Panel Investigation," Economics Working Papers wp06-11, School of Economics, University of Wollongong, NSW, Australia.
  6. Fassil Fanta, 2012. "Macroeconomic uncertainty, excess liquidity and stability of money demand (M3) in Australia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 325-344.
  7. Akhter Faroque & William Veloce & Jean-Francois Lamarche, 2009. "Have Structural Changes Eliminated the Out-of-Sample Ability of Financial Variables To Forecast Real Activity After the Mid-1980s? Evidence From the Canadian Economy," Working Papers 0910, Brock University, Department of Economics, revised Oct 2010.
  8. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.
  9. Leigh Drake & Adrian Fleissig, 2004. "Admissible Monetary Aggregates and UK Inflation Targeting," Money Macro and Finance (MMF) Research Group Conference 2004 2, Money Macro and Finance Research Group.
  10. Ozturk, Ilhan & Acaravci, Ali, 2008. "The Demand for Money in Transition Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 35-43, June.
  11. Akhter Faroque & William Veloce & Jean-Francois Lamarche, 2008. "The impact of structural breaks on the stability of the out-of-sample predictive content of financial variables for Canada's real GDP growth: An encompassing approach," Working Papers 0803, Brock University, Department of Economics.
  12. Abbas Valadkhani, 2008. "Long- and Short-Run Determinants of the Demand for Money in the Asian-Pacific Countries: An Empirical Panel Investigation," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 77-90, May.
  13. Pierre Siklos, 2010. "Taking Monetary Aggregates Seriously," e-briefs 94, C.D. Howe Institute.

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