INTEREST RATES, MONEY, AND ECONOMIC ACTIVITY

2019 ◽  
pp. 1-50 ◽  
Author(s):  
Cosmas Dery ◽  
Apostolos Serletis
Keyword(s):  
Interest Rates ◽  
Industrial Production ◽  
Economic Activity ◽  
Structural Vector Autoregression ◽  
Structural Shocks ◽  
Monetary Aggregates ◽  
Divisia Monetary Aggregates ◽  
Economic Statistics ◽  
Cyclical Component ◽  
Comprehensive Comparison

In this paper, we are motivated by the fact that little is known about the relative performance of broad and narrow Divisia monetary aggregates, and by recent work that tests and rejects the appropriateness of the aggregation assumptions that underlie the various monetary aggregates published by the Federal Reserve as well as a large number of monetary asset groupings suggested by earlier studies. We present a comprehensive comparison of narrow versus broad Divisia monetary aggregates within three classes of empirical models. We compute correlations between the cyclical components of Divisia monetary aggregates at different levels of aggregation and the cyclical component of industrial production. We test for Granger causality running from the Divisia aggregates to industrial production and various other measures of real economic activity. We also reestimate a structural vector autoregression based on earlier work by Leeper and Roush [(2003) Journal of Money, Credit, and Banking 35, 1217–1256] and Belongia and Ireland [(2015) Journal of Business and Economic Statistics 33, 255–269; (2016) Journal of Money, Credit and Banking 48, 1223–1266], modifying that earlier work using monthly rather than quarterly data and extending it, both using broad as well as narrower Divisia monetary aggregates and by allowing for Generalized autoregressive conditional heteroskedasticity (GARCH) behavior in the structural shocks.

scholarly journals Constructing Divisia Monetary Aggregates for Singapore

2021 ◽  
Vol 14 (8) ◽  
pp. 370
Author(s):  
William A. Barnett ◽  
Van H. Nguyen
Keyword(s):  
Interest Rates ◽  
Economic Activity ◽  
Credit Card ◽  
Index Number ◽  
User Cost ◽  
Monetary Aggregates ◽  
Divisia Monetary Aggregates ◽  
Index Number Theory ◽  
Future Work ◽  
Year 2000

Since Barnett derived the user cost price of money, the economic theory of monetary services aggregation has been developed and extended into a field of its own with solid foundations in microeconomic theory. Divisia monetary aggregates have repeatedly been shown to be strictly preferable to their simple sum counterparts, which have no competent foundations in microeconomic aggregation or index number theory. However, most central banks in the world, including that of Singapore, the Monetary Authority of Singapore (MAS), still report their monetary aggregates as simple summations. Recent macroeconomic research about Singapore tends to focus on exchange rates as a monetary policy target but ignores the aggregate quantity of money. Is that because quantities of money are irrelevant to economic activity? To examine the role of monetary quantities as potential monetary instruments, indicators, or targets and their relevance to predicting real economic activity in Singapore, this paper applies the user cost of money formula and the recently developed credit-card-augmented Divisia monetary aggregates formula to construct monetary services indexes for Singapore. We produce those state-of-the-art monetary services indexes from Jan 1991 to Mar 2021. We see that Divisia measures behave differently from simple sum measures in the period before the year 2000, while interest rates were high. Credit-card-augmented Divisia monetary services move closely with the conventional Divisia monetary aggregates, since the volume of credit card transactions in Singapore is relatively small compared with other monetary service assets. In future work, we plan to use our data to explore central bank policy in Singapore and to propose improvements in that policy. By making our data available to the public, we encourage others to do the same.

scholarly journals Money Neutrality, Monetary Aggregates and Machine Learning

Algorithms ◽  
2019 ◽  
Vol 12 (7) ◽  
pp. 137 ◽  
Author(s):  
Periklis Gogas ◽  
Theophilos Papadimitriou ◽  
Emmanouil Sofianos
Keyword(s):  
Machine Learning ◽  
Economic Activity ◽  
Central Banks ◽  
Support Vector ◽  
Short Term ◽  
Monetary Aggregates ◽  
Divisia Monetary Aggregates ◽  
Vector Machines ◽  
The World ◽  
Short Run

The issue of whether or not money affects real economic activity (money neutrality) has attracted significant empirical attention over the last five decades. If money is neutral even in the short-run, then monetary policy is ineffective and its role limited. If money matters, it will be able to forecast real economic activity. In this study, we test the traditional simple sum monetary aggregates that are commonly used by central banks all over the world and also the theoretically correct Divisia monetary aggregates proposed by the Barnett Critique (Chrystal and MacDonald, 1994; Belongia and Ireland, 2014), both in three levels of aggregation: M1, M2, and M3. We use them to directionally forecast the Eurocoin index: A monthly index that measures the growth rate of the euro area GDP. The data span from January 2001 to June 2018. The forecasting methodology we employ is support vector machines (SVM) from the area of machine learning. The empirical results show that: (a) The Divisia monetary aggregates outperform the simple sum ones and (b) both monetary aggregates can directionally forecast the Eurocoin index reaching the highest accuracy of 82.05% providing evidence against money neutrality even in the short term.

THE CASE FOR DIVISIA MONEY TARGETING

2012 ◽  
Vol 17 (8) ◽  
pp. 1638-1658 ◽  
Author(s):  
Apostolos Serletis ◽  
Sajjadur Rahman
Keyword(s):  
Economic Activity ◽  
The United States ◽  
Money Growth ◽  
Monetary Policies ◽  
Average Growth ◽  
Monetary Aggregates ◽  
Method Of Calculation ◽  
Divisia Monetary Aggregates ◽  
Level Of Aggregation ◽  
Growth Volatility

In this paper we investigate the relationship between money growth uncertainty and the level of economic activity in the United States. We pay explicit attention to the Divisia monetary aggregates. In doing so, we use the new vintage of the data [called MSI (monetary services indices) by the St. Louis Fed], together with the simple sum monetary aggregates, over the period from 1967:1 to 2011:3. In the context of a bivariate VARMA, GARCH-in-mean, asymmetric BEKK model, we show that increased Divisia money growth volatility (irrespective of the level of aggregation and the method of calculation) is associated with a lower average growth rate of real economic activity. However, there are no effects of simple-sum money growth volatility on real economic activity, except with the Sum M1 and perhaps Sum M2M aggregates. We conclude that monetary policies that focus on the Divisia monetary aggregates and target their growth rates will contribute to higher overall economic growth.

scholarly journals Money and inflation in Switzerland

2022 ◽  
Vol 158 (1) ◽  
Author(s):  
Peter Kugler ◽  
Samuel Reynard
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Money Demand ◽  
Economic Activity ◽  
Monetary Aggregates ◽  
The Past ◽  
Exchange Rate Fluctuations ◽  
Policy Transmission ◽  
Secular Decline ◽  
The Relationship

AbstractThis paper characterizes the relationship between monetary aggregates, inflation and economic activity in Switzerland since the mid-1970s. Traditional forms of money demand and quantity theory relationships have remained stable over the whole period. Broad money excesses over trend values, accounting for a secular decline in interest rates and thus in trend velocity, have been followed by persistently higher inflation and output with the usual monetary policy transmission lags. Money and exchange rate fluctuations can explain the major inflation developments in Switzerland over the past four decades.

scholarly journals DO MONETARY AGGREGATES BELONG IN A MONETARY MODEL? EVIDENCE FROM THE UK

2020 ◽  
Vol 22 (4) ◽  
pp. 509-530
Author(s):  
Mehmet Ezer
Keyword(s):  
Interest Rates ◽  
Informational Content ◽  
Structural Vector Autoregression ◽  
Monetary Model ◽  
Monetary Aggregates ◽  
Model Evidence ◽  
The Uk ◽  
Monetary Models ◽  
Structural Vector ◽  
Correct Measure

Conventional monetary models focus on interest rates and omit monetary aggregatesfrom policy discussions. This paper examines whether augmenting the measure ofmonetary policy with monetary aggregates helps determine more robust links betweenpolicy and economic fluctuations. After constructing the Divisia money index for theUK, I employ structural vector autoregression to identify two different UK monetarypolicy regimes. Inclusion of this (correct) measure of money and disentangling themoney supply from demand resolve the price and liquidity puzzles. The results pointto the informational content embedded in monetary aggregates, suggesting theyshould be taken into account in evaluations of monetary policy.

scholarly journals Divisia and Simple Sum Monetary Aggregates: Any Empirical Relevance for Turkey?

2018 ◽  
Vol 7 (1) ◽  
pp. 175-206
Author(s):  
Umurcan Polat
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Money Supply ◽  
A Priori ◽  
Alternative Measure ◽  
Real Activity ◽  
Divisia Index ◽  
Policy Regimes ◽  
Monetary Aggregates ◽  
Divisia Monetary Aggregates

AbstractIn consideration of channels through which monetary policy affects economic activity, the monetary aggregates have been mostly ignored by the monetary authorities instead of which shortrun interest rates have been given a priori role. These monetary aggregates are largely argued to fail in measuring the effectiveness of different monetary policy regimes in forecasting the macroeconomic fundamentals. Grounded on the “Barnett critique”, the formation of traditional simple-sum monetary aggregates assuming for perfect substitution among the components of the money supply is blamed for such a failure of money in explaining the real activity. Given increasing varieties of financial assets which have completely different “moneyness”, it is important to provide an alternative measure of the money supply. Hereby, the Divisia monetary aggregates which give different weights to different assets have arisen as an alternative approach. In this study, a Divisia index is constructed to test its predictive power on quantities and prices compared to its simple sum counterpart. Accordingly, a Divisia index is built-up for Turkish economy for the period 2006-2016 to see whether the utilization of the Divisia monetary aggregates in the conduct of monetary policy makes any difference compared to that of traditional simple sum money supply. Under different specifications, though the relative power of the Divisia aggregates in predicting quantity and price variables is found, still, it can be argued that theoretically well-rounded formation of the Divisia index is not that much empirically justified for the case of Turkey.

Economic effects of monetary policy in Russia: What do large datasets tell us?

2020 ◽  
pp. 31-53 ◽  
Author(s):  
Anna A. Pestova ◽  
Natalia A. Rostova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Activity ◽  
Global Financial Crisis ◽  
Exchange Rate Regime ◽  
Aggregate Demand ◽  
Economic Effects ◽  
Theoretical Concepts ◽  
Empirical Estimates

Is the Bank of Russia able to control inflation and, at the same time, manage aggregate demand using its interest rate instruments? In other words, are empirical estimates of the effects of monetary policy in Russia consistent with the theoretical concepts and experience of advanced economies? This paper is aimed at addressing these issues. Unlike previous research, we employ “big data” — a large dataset of macroeconomic and financial data — to estimate the effects of monetary policy in Russia. We focus exclusively on the period after the 2008—2009 global financial crisis when the Bank of Russia announced the abandoning of its fixed ruble exchange rate regime and started to gradually transit to an interest rate management. Our estimation results do not confirm standard responses of key economic activity and price variables to tightening of monetary policy. Specifically, our estimates do not reveal a statistically significant restraining effect of the Bank of Russia’s policy of high interest rates on inflation in recent years. At the same time, we find a significant deteriorating effect of the monetary tightening on economic activity indicators: according to our conservative estimates, each of the key rate increases occurred in March and December 2014 had led to a decrease in the industrial production index by about 0.2 percentage points within a year.

ANALYSIS OF UNEMPLOYMENT USING FOUR-FACTOR MODEL IN EUROPEAN UNION COUNTRIES

2020 ◽  
Author(s):  
Ľubica Hurbánková ◽  
Keyword(s):  
European Union ◽  
Unemployment Rate ◽  
Economic Activity ◽  
Total Population ◽  
Factor Model ◽  
Economic Statistics ◽  
European Union Countries ◽  
Working Age ◽  
Working Age Population ◽  
Microsoft Office

The paper deals with the analysis of unemployment in European Union countries on the basis of data of the unemployment rate and the number of unemployed. The data are obtained from the Eurostat website. The aim of the paper is to find out how the number of unemployed in individual EU countries changed in 2018 compared to 2009, in which country the number of unemployed increased the most, in which the least. Appropriate tools of economic statistics are used for the analysis. Based on a four-factor model of the analysis of the number of unemployed, we find out how this indicator has changed depending on the change in the unemployment rate, the economic activity rate, the share of the working age population in the total population, and the total population. The application of statistical method is implemented through the programme Microsoft Office Excel.

scholarly journals A global perspective on macroprudential policy interaction with systemic risk, real economic activity, and monetary intervention

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Mikhail I. Stolbov ◽  
Maria A. Shchepeleva ◽  
Alexander M. Karminsky
Keyword(s):  
Systemic Risk ◽  
Industrial Production ◽  
Economic Activity ◽  
Global Financial Crisis ◽  
Convincing Evidence ◽  
Global Perspective ◽  
Growth Effect ◽  
Macroprudential Policy ◽  
Study Results ◽  
Systemic Stress

AbstractThe study empirically assesses how macroprudential policy interacts with systemic risk, industrial production, and monetary intervention on a global level from January 2006 to December 2018. We adopt the aggregate proxies of these variables, capturing their global effects, and use a novel econometric technique, namely, smooth local projections. The study finds that global macroprudential policy leads the monetary policy, exhibiting a countercyclical pattern concerning industrial production. The latter has an inverse bidirectional linkage with systemic risk. Thus, an ex-ante tight macroprudential policy can indirectly mitigate global systemic risk through its pro-growth effect on industrial production, although no convincing evidence exists for the direct impact of a macroprudential intervention on systemic risk. The study results endure several extensions and a robustness check, which builds on alternative measures of global systemic stress and real economic activity, thereby legitimizing the increased importance attached to the macroprudential policy since the 2007–2009 global financial crisis.

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