Financial Conditions and the Money-Output Relationship in Canada
AbstractWe propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth. In addition, we find that credit conditions also play a role in that relationship. In particular, there is an additional negative short-run impact of money on growth when credit is not readily available, supporting the precautionary motive for holding money. Finally, money is found to have no effect on output growth in the long-run.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 12-33.
Length: 44 pages
Date of creation: 2012
Date of revision:
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Monetary aggregates; Credit and credit aggregates; Business fluctuations and cycles;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-BAN-2012-10-13 (Banking)
- NEP-BEC-2012-10-13 (Business Economics)
- NEP-FDG-2012-10-13 (Financial Development & Growth)
- NEP-MAC-2012-10-13 (Macroeconomics)
- NEP-MON-2012-10-13 (Monetary Economics)
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