About the role of monetary aggregates for monetary policy: the case of Peru
The purpose of this paper is to analyze the relevance of monetary aggregates for monetary policy as indicators of real activity. The main hypothesis of this paper is that narrow monetary aggregates can help forecasting real output. The empirical analysis combines the time scale decomposition of time series using wavelets and the possible existence of cointegrating relationships between money, output and prices. Using recent Peruvian data, evidence is found to support the proposed hypothesis. In particular, the results suggest the existence of co-integration between non-stationary series built using wavelet filtering. In this context, exogeneity tests reveal that narrow monetary aggregates are weakly and strongly exogenous; i.e., they are helpful for forecasting real output. These results suggest that money has a role for monetary policy as an indicator of real activity.