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Regime Shifts in the Indicator Properties of Narrow Money in Canada

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  • Tracy Chan
  • Ramdane Djoudad
  • Jackson Loi

Abstract

Financial innovations and the removal of the reserve requirements in the early 1990s have made the distinction between demand and notice deposits arbitrary. This classification issue has affected those narrow monetary aggregates (gross and net M1) that rely on a proper distinction for their definition, and may have eroded their value as indicators. The authors examine whether the indicator properties of various narrow aggregates for the growth of real output have changed over time. They find evidence of a regime shift in the relationship between real and narrow monetary aggregates and the growth of real output, which seems to have occurred in 1992. More specifically, their results show that real M1+, the definition of which is not based on the distinction between demand and notice deposits, has become a more useful indicator in predicting the growth of real output over the more recent period.

Suggested Citation

  • Tracy Chan & Ramdane Djoudad & Jackson Loi, 2006. "Regime Shifts in the Indicator Properties of Narrow Money in Canada," Staff Working Papers 06-6, Bank of Canada.
  • Handle: RePEc:bca:bocawp:06-6
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    References listed on IDEAS

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    Cited by:

    1. Maral Kichian, 2012. "Financial Conditions and the Money-Output Relationship in Canada," Staff Working Papers 12-33, Bank of Canada.

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    More about this item

    Keywords

    Monetary aggregates;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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