Factors Affecting Monetary Growth: ARIMA Forecasts of Monetary Base and Multiplier
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Factors Affecting Monetary Growth: ARIMA Forecasts of Monetary Base and Multiplier
Dewald, William G. | Lai, Tsung-Hui
Credit and Capital Markets – Kredit und Kapital, Vol. 20 (1987), Iss. 3 : pp. 303–316
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William G. Dewald, Washington, D.C.
Tsung-Hui Lai, Lynchburg, V.
References
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Abstract
Factors Affecting Monetary Growth: ARIMA Forecasts of Monetary Base and Multiplier
This paper uses the technique of autoregressive integrated moving averages to forecast the money multiplier and noncontrolled factors that affect the monetary base in the United States. These forecasts in turn are used to forecast the Ml money stock. Previous analysis along these lines has assumed that the monetary base was autonomous. The present analysis reveals that the Federal Reserve could have hit its Ml growth targets with less than one percent error on the assumption that the Federal Reserve forecasts both the monetary multiplier and noncontrolled sources of variation in the monetary base. In the present study, the M1 multiplier is forecast monthly and the noncontrolled sources of the monetary base weekly from which monthly average forecasts are derived. The conclusion is that observed failures to control monetary growth as targeted in the United States reflect unwillingness not inability to do so. Though control of only the M1 aggregate is examined in the present paper, this conclusion would be all the more applicable to broader aggregates, the added components of which are generally more stable and predictable than components of M1.