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The Information Content of Financial Aggregates in Australia

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Author Info
Ellis W Tallman (Reserve Bank of Australia)
Naveen Chandra (Reserve Bank of Australia)

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Abstract

This paper examines the information provided by financial aggregates as predictors of real output and inflation. We employ vector autoregression (VAR) techniques to summarise the information in the data, providing evidence on the incremental forecasting value of financial aggregates in a range of forecasting systems for these variables. The in-sample results suggest significant predictive power in only a small number of cases. We then test the forecast performance of the VAR systems for two years out-of-sample in order to mimic more closely the real-time forecasting problem faced by policymakers. Overall, both in-sample and out-of-sample results suggest no robust finding of exploitable information for forecasting purposes in any of the financial aggregates under examination. There is some evidence that the aggregates yield improved forecasts late in the sample period, but there is insufficient subsequent data to draw robust conclusions from this.

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Publisher Info
Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9606.

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Date of creation: Nov 1996
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Handle: RePEc:rba:rbardp:rdp9606

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Find related papers by JEL classification:
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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

References listed on IDEAS
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. Gordon de Brouwer & Irene Ng & Robert Subbaraman, 1993. "The Demand for Money in Australia: New Tests on an Old Topic," RBA Research Discussion Papers rdp9314, Reserve Bank of Australia. [Downloadable!]
  2. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
  3. Jerome Fahrer & Justin Myatt, 1991. "Inflation in Australia: Causes, Inertia and Policy," RBA Research Discussion Papers rdp9105, Reserve Bank of Australia. [Downloadable!]
  4. Trevor, R G & Thorp, S J, 1988. "VAR Forecasting Models of the Australian Economy: A Preliminary Analysis," Australian Economic Papers, Blackwell Publishing, vol. 27(0), pages 108-20, Supplemen.
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  5. James H. Stock & Mark W. Watson, 1987. "Interpreting Evidence on Money-Income Causality," NBER Working Papers 2228, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis. [Downloadable!]
  7. Orden, David & Fisher, Lance A, 1993. "Financial Deregulation and the Dynamics of Money, Prices, and Output in New Zealand and Australia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 273-92, May. [Downloadable!] (restricted)
  8. Adrian Blundell-Wignall & Marianne Gizycki, 1992. "Credit Supply and Demand and the Australian Economy," RBA Research Discussion Papers rdp9208, Reserve Bank of Australia. [Downloadable!]
  9. Michael Coelli & Jerome Fahrer, 1992. "Indicators of Inflationary Pressure," RBA Research Discussion Papers rdp9207, Reserve Bank of Australia. [Downloadable!]
  10. Stephen G. Cecchetti, 1996. "Inflation Indicators and Inflation Policy," NBER Working Papers 5161, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Mark A. Thoma & Jo Anna Gray, 1994. "On leading indicators: getting it straight," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  12. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June. [Downloadable!] (restricted)
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Cited by:
(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. Ellis W Tallman & Naveen Chandra, 1997. "Financial Aggregates as Conditioning Information for Australian Output and Inflation," RBA Research Discussion Papers rdp9704, Reserve Bank of Australia. [Downloadable!]
    Other versions:
  2. Feridun, M. & Adebiyi, M.A., 2006. "Forecasting Inflation in Developing Economies: The Case of Nigeria, 1986-1998," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 3(1), pages 55-84. [Downloadable!]
  3. Malcom Edey, 1997. "The Debate on Alternatives for Monetary Policy in Australia," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia. [Downloadable!]
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