New dogs and old tricks: do money and interest rates still provide information content for forecasts of output and prices?

Abstract

Out-of-sample forecasting experiments are used as an alternative to looking at F-statistics when examining whether money, interest rates or the commercial paper/T-bill spread provide information content for subsequent movements in output, real and nominal personal income, the CPI and the PPI. Here, a variable provides information if it improves the forecast of the explained variable. Employing this procedure we find that the paper-bill spread but not monetary aggregates provide information content for industrial production or real personal income when using data over the 1980–1997 period. In contrast, we find that monetary aggregates provide information content for the CPI and nominal personal income but not the PPI.