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Direct and indirect forecasting of the money multiplier and velocity of circulation in the United Kingdom

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  • Imad Moosa
  • Jae Kim

Abstract

This paper compares the direct and indirect methods of predicting the money multiplier and velocity of circulation in the UK economy. Forecasts are generated using the autoregressive (AR) model and Harvey's structural time series model. In addition to point forecasts, prediction intervals (calculated by using the recently proposed bootstrap-after-bootstrap) are used for comparing forecasting accuracy. The results turn out to be mixed but the overall evidence seems to be in favour of the direct method. It is suggested that this may be due to the pooling of time series (as implied by the definition), which reduces the noise associated with individual time series.

Suggested Citation

  • Imad Moosa & Jae Kim, 2004. "Direct and indirect forecasting of the money multiplier and velocity of circulation in the United Kingdom," International Economic Journal, Taylor & Francis Journals, vol. 18(1), pages 103-118.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:1:p:103-118
    DOI: 10.1080/1351161042000180665
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    References listed on IDEAS

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    1. Kim, Jae H, 2001. "Bootstrap-after-Bootstrap Prediction Intervals for Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 117-128, January.
    2. Christopher T. Babb & Albert E. Burger & Lionel Kalish, 1971. "Money stock control and its implications for monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 53(Oct), pages 6-22.
    3. Rik Hafer & Scott E. Hein & Clemens J. M. Kool, 1983. "Forecasting the money multiplier: implications for money stock control and economic activity," Review, Federal Reserve Bank of St. Louis, vol. 65(Oct), pages 22-33.
    4. Johannes, James M. & Rasche, Robert H., 1979. "Predicting the money multiplier," Journal of Monetary Economics, Elsevier, vol. 5(3), pages 301-325, July.
    5. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
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    Citations

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    Cited by:

    1. Ngomba Bodi, Francis Ghislain & Onomo, Julie, 2018. "Analyse du multiplicateur monétaire en zone CEMAC [Money multiplier analysis in CEMAC subregion]," MPRA Paper 116431, University Library of Munich, Germany.
    2. Hénock Katuala Muanza, 2020. "Stability and predictability of the monetary multiplier in the Democratic Republic of the Congo [Stabilité et prédictibilité du multiplicateur monétaire en République démocratique du Congo ]," Working Papers hal-02610767, HAL.
    3. Hénock Muanza Katuala, 2020. "Monetary Policy, Monetary Stability And Economic Growth In The Democratic Republic Of Congo [Politique Monetaire, Stabilite Monetaire Et Croissance Economique En Republique Democratique Du Congo]," Working Papers hal-02616124, HAL.

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    More about this item

    Keywords

    JEL Classification: E5; Autoregressive model; bootstrap; Harvey's Structural Time Series Model;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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