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Can We Predict GDP through Examining the Past Values of Money? Empirical Evidence from an Asian Tiger

Author

Listed:
  • Feridun, Mete

    (Faculty of Economics and Administrative Sciences, Cyprus International University)

Abstract

The paper aims at establishing whether the fluctuations of money help predict future fluctuations of income, that are not already predictable on the basis of fluctuations of income itself or other readily observable variables. For this purpose vector autoregression (VAR) modelling is used to test whether changes in money supply (M2) has any deterministic or predictive content for movements in Income (GDP). The analysis is performed using quarterly macroeconomic data from Singapore spanning the period between 1980 and 2001. The results suggest that money (M2) and interest rates have information content for future movements in real GDP beyond that contained in past values of GDP itself. This relationship only establishes itself with a fairly long lag. The finding suggests the possibility of making use of the money-income relationship for forecasting purposes.

Suggested Citation

  • Feridun, Mete, 2005. "Can We Predict GDP through Examining the Past Values of Money? Empirical Evidence from an Asian Tiger," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 58(1), pages 1-7.
    • Handle: RePEc:ris:ecoint:0115
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    More about this item

    Keywords

    Vector autoregression (VAR); cointegration; causality;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F30 - International Economics - - International Finance - - - General

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