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Analyzing the Monetary Aggregates

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In recent years, the Bank has put renewed emphasis on analyzing monetary variables and on developing models that incorporate money as an active part of the transmission mechanism. In this article, Dinah Maclean describes how the monetary aggregates are used in the formulation of monetary policy analysis at the Bank, outlining the key tools and models used. The most important money-based model currently in use is the M1-VECM. In this model, deviations in the money supply from the long-term demand for money cause changes in inflation. The author briefly describes the "active-money" paradigm underlying this model and explains the key equations within it. Other simpler empirical models are also outlined, including single-equation indicator models for output based on the narrow aggregates, a neural network, and a model based on the broader aggregate M2++. A detailed technical annex provides details on model equations and coefficient values.

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  • Dinah Maclean, 2001. "Analyzing the Monetary Aggregates," Bank of Canada Review, Bank of Canada, vol. 2001(Summer), pages 31-43.
    • Handle: RePEc:bca:bcarev:v:2001:y:2001:i:summer01:p:31-43
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    Cited by:

    1. David Longworth, 2003. "Money in the Bank (of Canada)," Technical Reports 93, Bank of Canada.
    2. Tracy Chan & Ramdane Djoudad & Jackson Loi, 2006. "Regime Shifts in the Indicator Properties of Narrow Money in Canada," Staff Working Papers 06-6, Bank of Canada.
    3. Georgopoulos, George J., 2006. "Estimating the demand for money in Canada: Does including an own rate of return matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 513-529, September.
    4. Erika Arraño G., 2006. "Agregados Monetarios: Nuevas Definiciones," Economic Statistics Series 53, Central Bank of Chile.
    5. Paul Gilbert & Lise Pichette, 2003. "Dynamic Factor Analysis for Measuring Money," Staff Working Papers 03-21, Bank of Canada.

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