The Information Content of Money and Credit for US Activity

34 Pages Posted: 24 Jun 2015

See all articles by Bruno Albuquerque

Bruno Albuquerque

European Central Bank (ECB)

Ursel Baumann

European Central Bank (ECB)

Franz Seitz

Technical University of Applied Sciences Weiden

Date Written: June 22, 2015

Abstract

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.

Keywords: credit; forecasting; money

JEL Classification: E41, E52, E58

Suggested Citation

Albuquerque, Bruno and Baumann, Ursel and Seitz, Franz, The Information Content of Money and Credit for US Activity (June 22, 2015). ECB Working Paper No. 1803, Available at SSRN: https://ssrn.com/abstract=2621566

Bruno Albuquerque

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ursel Baumann

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
Frankfurt am Main, D-60311
Germany

Franz Seitz (Contact Author)

Technical University of Applied Sciences Weiden ( email )

Hetzenrichter Weg 15
D-92637 Weiden i.d. Opf
Germany
(49) 961-382-1318 (Fax)

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