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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Friedman, Benjamin M. & Kuttner, Kenneth N., 1993.
"Another look at the evidence on money-income causality,"
Journal of Econometrics,
Elsevier, vol. 57(1-3), pages 189-203.
- Benjamin M. Friedman & Kenneth N. Kuttner, 1994. "Another Look at the Evidence on Money-Income Causality," NBER Working Papers 3856, National Bureau of Economic Research, Inc.
- Robert G. King & Mark W. Watson, 1992.
"Testing long run neutrality,"
Working Paper Series, Macroeconomic Issues
92-18, Federal Reserve Bank of Chicago.
- Christopher A. Sims & Tao Zha, 2006.
"Were There Regime Switches in U.S. Monetary Policy?,"
American Economic Review,
American Economic Association, vol. 96(1), pages 54-81, March.
- Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
- Irina A. Telyukova & Randall Wright, 2007.
"A model of money and credit, with application to the credit card debt puzzle,"
0711, Federal Reserve Bank of Cleveland.
- Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 629-647.
- Irina A. Telyukova & Randall Wright, 2006. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," 2006 Meeting Papers 45, Society for Economic Dynamics.
- Boivin, Jean & Kiley, Michael T. & Mishkin, Frederic S., 2010.
"How Has the Monetary Transmission Mechanism Evolved Over Time?,"
Handbook of Monetary Economics,
in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 8, pages 369-422
- Jean Boivin & Michael T. Kiley & Frederic S. Mishkin, 2010. "How has the monetary transmission mechanism evolved over time?," Finance and Economics Discussion Series 2010-26, Board of Governors of the Federal Reserve System (U.S.).
- Jean Boivin & Michael T. Kiley & Frederic S. Mishkin, 2010. "How Has the Monetary Transmission Mechanism Evolved Over Time?," NBER Working Papers 15879, National Bureau of Economic Research, Inc.
- Barry Cozier & Greg Tkacz, 1994.
"The Term Structure and Real Activity in Canada,"
9406001, EconWPA, revised 23 Jun 1994.
- Scott Hendry & Charleen Adam, 2001. "The M1 Vector-Error-Correction Model: some Extensions and Applications," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 145-175, July-Dece.
- Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
- Favara, Giovanni & Giordani, Paolo, 2002.
"Reconsidering the Role of Money for Output, Prices and Interest Rates,"
Working Paper Series in Economics and Finance
514, Stockholm School of Economics.
- Favara, Giovanni & Giordani, Paolo, 2009. "Reconsidering the role of money for output, prices and interest rates," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 419-430, April.
- Céline Gauthier & Fu Chun Li, 2006. "Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model," Working Papers 06-42, Bank of Canada.
- Psaradakis, Zacharias & Ravn, Morten O. & Sola, Martin, 2003.
"Markov Switching Causality and the Money-Output Relationship,"
CEPR Discussion Papers
3803, C.E.P.R. Discussion Papers.
- Morten O. Ravn & Zacharias Psaradakis & Martin Sola, 2005. "Markov switching causality and the money-output relationship," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(5), pages 665-683.
- Vilasuso, Jon, 2000. " Trend Breaks in Money Growth and the Money-Output Relation in the U.S," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 53-60, February.
- Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
- Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
- Tracy Chan & Ramdane Djoudad & Jackson Loi, 2006. "Regime Shifts in the Indicator Properties of Narrow Money in Canada," Working Papers 06-6, Bank of Canada.
- Karel Mertens, 2006. "How the Removal of Deposit Rate Ceilings Has Changed Monetary Transmission in the US: Theory and Evidence," Economics Working Papers ECO2006/34, European University Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.