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Financial Conditions and the Money-Output Relationship in Canada

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  • Maral Kichian

Abstract

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.

Suggested Citation

  • Maral Kichian, 2012. "Financial Conditions and the Money-Output Relationship in Canada," Staff Working Papers 12-33, Bank of Canada.
    • Handle: RePEc:bca:bocawp:12-33
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary aggregates; Credit and credit aggregates; Business fluctuations and cycles;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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