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The Information Content Of Money And Credit For US Activity

Listed author(s):
  • Seitz, Franz
  • Albuquerque, Bruno
  • Baumann, Ursel

We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships.

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File URL: https://www.econstor.eu/bitstream/10419/113066/1/VfS_2015_pid_288.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2015 (Muenster): Economic Development - Theory and Policy with number 113066.

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Date of creation: 2015
Handle: RePEc:zbw:vfsc15:113066
Contact details of provider: Web page: http://www.socialpolitik.org/
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