Money as an Indicator
The leading indicator properties of various of the money and credit aggregates over real activity and inflation is assessed, using Granger-causality tests and impulse response functions. The approach is explicitly disaggregated, looking at sectoral measures of money and credit and various disaggregations of activity - in line with the results of earlier Bank research. Strong and significant effects from narrow money through to nominal GDP and, in particular, prices are found. Broader measures of money/credit - M4, M4 lending to Divisia - do much less well at an aggregate level. But sectoral disaggregation helps matters: for example, corporate M4 and Divisia appear to have a reliable mapping with investment and production and some measures of prices. However, none of the monetary aggregates offer sufficiently robust early warning signals to justify intermediate target status. Rather the message is that, when used alongside other information variables such as the Banks inflation projection, some of the monetary aggregates offer useful corroborative information about incipient activity and price developments.
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- Quah, Danny & Vahey, Shaun P, 1995.
"Measuring Core Inflation?,"
Royal Economic Society, vol. 105(432), pages 1130-44, September.
- Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
- Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
- Tom Doan, . "RATS programs to replicate Quah and Vahey core inflation estimation," Statistical Software Components RTZ00139, Boston College Department of Economics.
- Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
- Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
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