Financial Conditions and the Money-Output Relationship in Canada
Staff Working Papers from Bank of Canada
We propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth. In addition, we find that credit conditions also play a role in that relationship. In particular, there is an additional negative short-run impact of money on growth when credit is not readily available, supporting the precautionary motive for holding money. Finally, money is found to have no effect on output growth in the long-run.
Keywords: Monetary aggregates; Credit and credit aggregates; Business fluctuations and cycles (search for similar items in EconPapers)
JEL-codes: E44 E51 (search for similar items in EconPapers)
Pages: 44 pages
New Economics Papers: this item is included in nep-ban, nep-bec, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:12-33
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