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The information content of financial aggregates in Australia

Author

Listed:
  • Naveen Chandra
  • Ellis W. Tallman

Abstract

This paper examines whether financial aggregates provide information useful for predicting the subsequent behavior of real output and inflation. We employ vector autoregression (VAR) techniques to summarize the information in the data, providing evidence on the incremental forecasting value of financial aggregates for forecasting real output and inflation. The in-sample results suggest that there are only a few situations in which knowledge of the aggregates helps forecast real output and inflation. 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. We compare the out-of-sample forecast accuracy of VAR systems including a financial aggregate with the corresponding system excluding the financial aggregate. Overall, both in-sample and out-of-sample results suggest no robust finding of exploitable information that is useful for policymakers in any of the financial aggregates under examination.

Suggested Citation

  • Naveen Chandra & Ellis W. Tallman, 1996. "The information content of financial aggregates in Australia," FRB Atlanta Working Paper 96-14, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:96-14
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    Cited by:

    1. Onour, Ibrahim, 2015. "Modeling inflation dynamics in a conflict economy," MPRA Paper 63527, University Library of Munich, Germany.
    2. 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.
    3. Mwankemwa, Lusajo P. & Mlamka, Bonaventura, . "Effects of Monetary Policy on Bank’s Credit Dynamics in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(2).
    4. Michael Adebayo Adebiyi, 2007. "Does Money Tell Us Anything About Inflation In Nigeria?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(01), pages 117-134.
    5. Simatele, Munacinga C H, 2004. "Financial sector reforms and monetary policy reforms in Zambia," MPRA Paper 21575, University Library of Munich, Germany.
    6. 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.
    7. Katherine Avram, 1998. "Implications Of New Payments Technology For Monetary Policy," Economic Papers, The Economic Society of Australia, vol. 17(4), pages 54-68, December.

    More about this item

    Keywords

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    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

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