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Forecasting real GDP: What role for narrow money?

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Author Info
Claus Brand () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Hans-Eggert Reimers () (Hochschule Wismar, FB Wirtschaft, Philipp-Mueller-Str. PF 1210, 23952 Wismar, Germany.)
Franz Seitz () (University of Applied Sciences Amberg-Weiden, Hetzenrichter Weg 15, D-92637 Weiden i.d. Opf, Germany.)

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Abstract

This paper analyses the information content of M1 for euro area real GDP since the beginning of the 1980s and reviews theoretical arguments on why real narrow money should help predict real GDP. We find that, unlike in the U.S., in the euro area, M1 has better and more robust forecasting properties for real GDP than yield spreads. This property persists when one controls for a number of other influences. We also evaluate the out-of-sample forecasting performance of different classes of VAR models comprising real M1, GDP and other indicators, using as benchmark a simple univariate model. As a result, only VARs in first differences are able to outperform the benchmark. JEL Classification: E41; E52; E58.

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Paper provided by European Central Bank in its series Working Paper Series with number 254.

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Length: 38 pages
Date of creation: Sep 2003
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Handle: RePEc:ecb:ecbwps:20030254

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Keywords: Money; business cycle; forecast comparison; VAR models.;

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References listed on IDEAS
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  1. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June. [Downloadable!] (restricted)
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  2. Fielding, David & Stracca, Livio, 2007. "Myopic loss aversion, disappointment aversion, and the equity premium puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 250-268, October. [Downloadable!] (restricted)
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  3. Bernd Schnatz & Chiara Osbat & Rasmus Rueffer, 2003. "The rise of the Yen vis-a-vis the ('Synthetic') Euro: is it supported by economic fundamentals?," Working Paper Series 224, European Central Bank. [Downloadable!]
  4. Efrem Castelnuovo, 2004. "Describing the Fed's conduct with simple Taylor rules: is interest rate smoothing important?," Money Macro and Finance (MMF) Research Group Conference 2003 12, Money Macro and Finance Research Group. [Downloadable!]
  5. Miquel A. Leon-Ledesma & Peter McAdam, 2003. "Unemployment, hysteresis and transition," Working Paper Series 234, European Central Bank. [Downloadable!]
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  6. Ignazio Angeloni & Gunter Coenen & Frank Smets, 2003. "Persistence, The Transmission Mechanism And Robust Monetary Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 527-549, November. [Downloadable!] (restricted)
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  7. Alessandro Calza & Joao Sousa & Marta Manrique Simon, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 202, European Central Bank. [Downloadable!]
  8. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
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  9. Inoue, Atsushi & Kilian, Lutz, 2003. "On the Selection of Forecasting Models," CEPR Discussion Papers 3809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Marcus H. Miller & Olli Castren & Roger Stiegert, 2003. "Growth expectations; capital flows and international risk sharing," Working Paper Series 237, European Central Bank. [Downloadable!]
  11. Andrea Zaghini, 2003. "Trade advantages and specialisation dynamics in acceding countries," Working Paper Series 249, European Central Bank. [Downloadable!]
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(explanations, 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.)

  1. Peter Hördahl & David Vestin, 2003. "Interpreting implied risk neutral densities: the role of risk premia," Working Paper Series 274, European Central Bank. [Downloadable!]
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  2. Andreas Beyer & Roger E.A. Farmer, 2003. "Identifying the monetary transmission mechanism using structural breaks," Working Paper Series 275, European Central Bank. [Downloadable!]
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  3. Guido Ascari & Neil Rankin, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series 346, European Central Bank. [Downloadable!]
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  4. Barry E. Jones & Livio Stracca, 2006. "Are money and consumption additively separable in the euro area? A non-parametric approach," Working Paper Series 704, European Central Bank. [Downloadable!]
  5. Michael Berlemann & Gerit Vogt, 2007. "Kurzfristige Wachstumseffekte von Naturkatastrophen," Ifo Working Paper Series Ifo Working Paper No. 52, Ifo Institute for Economic Research at the University of Munich. [Downloadable!]
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  6. Tomasz Lyziak, 2003. "Consumer inflation expectations in Poland," Working Paper Series 287, European Central Bank. [Downloadable!]
  7. Jens Richard Clausen & Carsten-Patrick Meier, 2005. "Did the Bundesbank Follow a Taylor Rule? An Analysis Based on Real-Time Data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(II), pages 213-246, June. [Downloadable!]
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