Forecasting real GDP: what role for narrow money?

Claus Brand, Hans-Eggert Reimers and Franz Seitz

No 254, Working Paper Series from European Central Bank

Abstract: This paper analyses the information content of M1 for euro area real GDP since the beginning of the 1980s and reviews theoretical arguments on why real narrow money should help predict real GDP. We find that, unlike in the U.S., in the euro area, M1 has better and more robust forecasting properties for real GDP than yield spreads. This property persists when one controls for a number of other influences. We also evaluate the out-of-sample forecasting performance of different classes of VAR models comprising real M1, GDP and other indicators, using as benchmark a simple univariate model. As a result, only VARs in first differences are able to outperform the benchmark. JEL Classification: E41, E52, E58

Keywords: business cycle; forecast comparison; money; VAR models (search for similar items in EconPapers)
Date: 2003-09
Note: 92649
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003254

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