Financial Conditions and the Money-Output Relationship in Canada
We 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.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
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.:
- Benjamin M. Friedman & Kenneth N. Kuttner, 1991.
"Another Look at the Evidence on Money-Income Causality,"
NBER Working Papers
3856, National Bureau of Economic Research, Inc.
- 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.
- 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, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland.
- 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.
- Barry Cozier & Greg Tkacz, .
"The Term Structure and Real Activity in Canada,"
94-3, Bank of Canada.
- Christopher A. Sims & Tao Zha, 2005.
"Were There Regime Switches in U.S. Monetary Policy?,"
92, Princeton University, Department of Economics, Center for Economic Policy Studies..
- 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, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
- Fernando Alvarez & Francesco Lippi, 2007.
"Financial Innovation and the Transactions Demand for Cash,"
EIEF Working Papers Series
0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
- Fernando Alvarez & Francesco Lippi, 2009. "Financial Innovation and the Transactions Demand for Cash," Econometrica, Econometric Society, vol. 77(2), pages 363-402, 03.
- Alvarez, Fernando & Lippi, Francesco, 2007. "Financial Innovation and the Transactions Demand for Cash," CEPR Discussion Papers 6472, C.E.P.R. Discussion Papers.
- Fernando E. Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," NBER Working Papers 13416, National Bureau of Economic Research, Inc.
- 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.).
- 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 Elsevier.
- 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.
- 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.
- Robert G. King & Mark W. Watson, 1997.
"Testing long-run neutrality,"
Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
- 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.
- 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.
- Favara, Giovanni & Giordani, Paolo, 2002. "Reconsidering the Role of Money for Output, Prices and Interest Rates," SSE/EFI Working Paper Series in Economics and Finance 514, Stockholm School of Economics.
- 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.
- 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.
- 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.
- 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.
- Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
- 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.
When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:12-33. See general information about how to correct material in RePEc.
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.