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Monetary aggregates as indicators of economic activity in Canada: empirical evidence

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  • Pierre L. Siklos
  • Andrew G. Barton
Abstract
Empirical evidence linking monetary aggregates to variables such as inflation and economic growth has weakened over the past two decades. In this study we re-examine these relationships by creating composite monetary aggregates that switch among existing monetary aggregates, using quarterly data over the sample 1971-99. Overall, composite monetary aggregates appear to be useful in explaining or forecasting short-run movements in GDP growth and inflation. Also, the most successful composite monetary aggregates produce switch dates that overlap with the introduction of financial innovations. These subsequently prompted the Bank of Canada to revise or introduce new monetary aggregates.

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  • Pierre L. Siklos & Andrew G. Barton, 2001. "Monetary aggregates as indicators of economic activity in Canada: empirical evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 1-17, February.
    • Handle: RePEc:cje:issued:v:34:y:2001:i:1:p:1-17
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    2. Leigh Drake & Adrian Fleissig, 2004. "Admissible Monetary Aggregates and UK Inflation Targeting," Money Macro and Finance (MMF) Research Group Conference 2004 2, Money Macro and Finance Research Group.
    3. Abbas Valadkhani, 2005. "Modelling Demand For Broad Money In Australia," Australian Economic Papers, Wiley Blackwell, vol. 44(1), pages 47-64, March.
    4. Fassil Fanta, 2012. "Macroeconomic uncertainty, excess liquidity and stability of money demand (M3) in Australia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 325-344.
    5. Pons Novell, J., 2002. "Ciclo de la economía española y contenido informativo de los tipos de interés," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 20, pages 583-598, Diciembre.
    6. Abbas Valadkhani & Mohammad Alauddin, 2003. "Demand for M2 in Developing Countries: An Empirical Panel Investigation," School of Economics and Finance Discussion Papers and Working Papers Series 149, School of Economics and Finance, Queensland University of Technology.
    7. Chen, Hongyi & Siklos, Pierre L., 2022. "Central bank digital currency: A review and some macro-financial implications," Journal of Financial Stability, Elsevier, vol. 60(C).
    8. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.
    9. Rebecca Stuart, 2020. "The term structure, leading indicators, and recessions: evidence from Switzerland, 1974–2017," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-17, December.
    10. E Andreou & A Pelloni & M Sensier, 2003. "The effect of nominal shock uncertainty on output growth," Centre for Growth and Business Cycle Research Discussion Paper Series 40, Economics, The University of Manchester.
    11. Michael Graff & Kam Ki Tang & Jie Zhang, 2012. "Does Demographic Change Affect the Current Account? A Reconsideration," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 12(4), pages 1-26, November.
    12. Akhter Faroque & William Veloce & Jean-Francois Lamarche, 2012. "Have structural changes eliminated the out-of-sample ability of financial variables to forecast real activity after the mid-1980s? Evidence from the Canadian economy," Applied Economics, Taylor & Francis Journals, vol. 44(30), pages 3965-3985, October.
    13. Kam Ki Tang & Michael Graff & Jie Zhang, "undated". "Macroeconomic Fluctuations in Emerging Economies: An Unobserved Components Approach," MRG Discussion Paper Series 4111, School of Economics, University of Queensland, Australia.
    14. Bassey Nsikan Edet & Solomon Ubong Udo & Okon Ubokudom Etim, 2017. "Modelling the Demand for Money Function in Nigeria: Is There Stability?," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(1), pages 45-57, March.
    15. Pierre Siklos, 2010. "Taking Monetary Aggregates Seriously," e-briefs 94, C.D. Howe Institute.
    16. Ozturk, Ilhan & Acaravci, Ali, 2008. "The Demand for Money in Transition Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 35-43, June.
    17. David Laidler, 2003. "Monetary Policy without Money: Hamlet without the Ghost," University of Western Ontario, Departmental Research Report Series 20037, University of Western Ontario, Department of Economics.
    18. Abbas Valadkhani, 2008. "Long- and Short-Run Determinants of the Demand for Money in the Asian-Pacific Countries: An Empirical Panel Investigation," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 77-90, May.
    19. Akhter Faroque & William Veloce & Jean-Francois Lamarche, 2008. "The impact of structural breaks on the stability of the out-of-sample predictive content of financial variables for Canada's real GDP growth: An encompassing approach," Working Papers 0803, Brock University, Department of Economics.
    20. Michael Graff, 2005. "Abstract," The European Journal of Finance, Taylor & Francis Journals, vol. 11(3), pages 183-205.
    21. Fassil Fanta, 2013. "Financial Deregulation, Economic Uncertainty and the Stability of Money Demand in Australia," Economic Papers, The Economic Society of Australia, vol. 32(4), pages 496-511, December.

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    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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