The Empirical Reliability of Monetary Aggregates as Indicators: 1983-1987

Michael Darby (), Angelo R Mascaro and Michael Marlow

Economic Inquiry, 1989, vol. 27, issue 4, 555-85

Abstract: 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 less other 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 M1A has done so well, but why economists abandoned it for M1 or what was once called M1B (currency, demand deposits, and other checkable deposits). Copyright 1989 by Oxford University Press.

Date: 1989
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