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Divisia money in a composite leading indicator of inflation

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Author Info

  • J. M. Binner
  • A. Fielding
  • A. W. Mullineux

Abstract

The principal objective of this paper is to compare the performance of the Divisia M4 monetary index with the standard Simple Sum measure of broad money in the context of composite leading indicators of inflation in the United Kingdom. Inflation targeting is an important component of current UK monetary policy and the construction of composite leading indicators of inflation is a potential advance over the current practice of monitoring a range of indicators of inflation. The leading indicators proposed provide useful turning point information for inflation and advocate principal component analysis as a more sophisticated weighting mechanism for the constituent components. Indicators constructed using a Divisia index measure of money were found to be more closely related to the inflation reference cycle than indicators using their Simple Sum counterparts when a principal components weighting mechanism was used.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/000368499323733
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 31 (1999)
Issue (Month): 8 ()
Pages: 1021-1031

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Handle: RePEc:taf:applec:v:31:y:1999:i:8:p:1021-1031

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Cited by:
  1. Alicia Gazely & Jane Binner & Graham Kendall, 2004. "Co-evolution vs. Neural Networks; An Evaluation of UK Risky Money," Computing in Economics and Finance 2004 258, Society for Computational Economics.
  2. Jane Binner & Rakesh Bissoondeeal & Andrew Mullineux, 2004. "A Composite Leading Indicator of the Inflation Cycle for the Euro Area," Money Macro and Finance (MMF) Research Group Conference 2004 24, Money Macro and Finance Research Group.
  3. C R Birchenhall & D R Osborn & M Sensier, 2000. "Predicting UK Business Cycle Regimes," Centre for Growth and Business Cycle Research Discussion Paper Series 02, Economics, The Univeristy of Manchester.
  4. Stracca, Livio, 2001. "Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area," Working Paper Series 0079, European Central Bank.
  5. Jane M. Binner & Peter Tino & Jonathan Tepper & Richard G. Anderson & Barry Jones & Graham Kendall, 2009. "Does money matter in inflation forecasting?," Working Papers 2009-030, Federal Reserve Bank of St. Louis.

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