THE EMPIRICAL RELIABILITY OF MONETARY AGGREGATES AS INDICATORS: 1983-1987

It is widely believed that monetary aggregates have failed to predict economic performance over 1983‐87. This paper observes that the traditional definition of money (M1 lessother checkable deposits, or M1A) shows no evidence of structural change, and yields lower prediction errors for both real GNP...

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Bibliographic Details
Published in:Economic inquiry 1989-10, Vol.27 (4), p.555-585
Main Authors: Darby, MICHAEL R., Mascaro, ANGELO R., Marlow, MICHAEL L.
Format: Article
Language:English
Subjects:
Aggregate
Economic forecasting
Economic indicators
GNP
Gross National Product
Growth rate
Inflation
Monetary
Monetary policy
Money
Money supply
Predictions
Statistical analysis
Studies
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Summary:It is widely believed that monetary aggregates have failed to predict economic performance over 1983‐87. This paper observes that the traditional definition of money (M1 lessother checkable deposits, or M1A) shows no evidence of structural change, and yields lower prediction errors for both real GNP and inflation over 1983‐87Q2 than the errors obtained using M1 or M2. If there is a mystery, it is not why MIA has done so well, but why economists abandoned it for M1 or what was once called M1B (currency, demand deposits, and other checkable deposits).
ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.1989.tb00790.x