Does Money Include Information for Output in the Euro Area?
Schweizerische Zeitschrift für Volkswirtschaft und Statistik / Revue Suisse d'Economie politique et de Statistique / Swiss Journal of Economics and Statistics, Volume 139, Issue 2, 2003, Pages 231-252
Keywords
Monetary transmission, Monetary channel, Divisia monetary aggregates, IS-curve
Abstract
In this paper, the importance of money for the output development is analysed over the period from 1980 to 2000 for the euro area, where simple sum and Divisia monetary aggregates are used. Adapting an in-sample analysis, all real monetary aggregates help to explain the output gap of the euro area regardless of what real interest rate is used to explain the IS curve. The out-of-sample forecasting exercise presents evidence that broadly defined monetary aggregates reduce the forecast errors of the output gap in the medium term.