RDP 8805: The Relationship Between Financial Indicators and Economic Activity: 1968–1987 Appendix: Data Sources and Methods

All data used in the paper are reproduced at the rear. The following sections detail sources of the data and, where appropriate, methods used to adjust the data.

1. Activity Variables

The activity variables used in the paper are from the December 1987 issue of the Quarterly Estimates of National Income and Expenditure, ABS Cat. No. 5206.0. Private demand is the sum of private consumption, dwelling investment (including real estate transfer expenses) and business fixed investment. Data for nominal demand are seasonally adjusted, at current prices; those for real demand are seasonally adjusted, in constant 1979/80 prices. Constant price data for periods prior to the March quarter 1969 are spliced from the 1974/75 based series.


The smoothed series for activity variables are, in all cases, three-quarter moving averages, centred on the reference quarter. For example, the smoothed figure for demand as at June 1987 is an average of the observations for the March, June and September quarters. Quarterly percentage changes in this smoothed series are shown on the graphs.

The intention of this process is to enable trends to be seen more easily on the graphs by smoothing out large fluctuations from quarter to quarter. At the same time, it is desirable to avoid giving a misleading impression as to the timing of turning points, hence, the moving average is centred, and has a small number of terms. For the correlation coefficients, unsmoothed (but still seasonally adjusted) data are used.

2. Financial Variables

(a) Interest Rates

Data for the yield on 90-day bank-accepted bills are from the Reserve Bank Bulletin; historical series are available on the Bulletin Database. The monthly data are averaged for each quarter, to form a better representation of the average interest rate prevailing in the quarter. Data for real interest rates are calculated by deducting the year-ended change in the Consumer Price Index from the nominal bill rate.

Data on the cash rate and the rate on certificates of deposit are also obtained from the Reserve Bank Bulletin and Database. As for the 90-day bill rate, quarterly data are the average of monthly figures.

(b) Financial Aggregates

For the monetary and credit aggregates, all data are from the Reserve Bank Bulletin. Data for M1 and M3 are seasonally adjusted, as calculated by the Australian Bureau of Statistics. Data for broad money, bank lending, lending by all financial intermediaries and credit have been seasonally adjusted by the authors, using the multiplicative X-11Q procedure. In each case, a standard F-test could reject the null hypothesis of no stable seasonality.

The quarterly figures are the average of the (seasonally adjusted) monthly figures. Quarterly growth rates for M3 and bank lending are adjusted for the entry of new banks. Those banks whose statistics were not available for each of the six monthly figures needed to calculate the percentage change between quarters were excluded for the purposes of the calculation.

For growth in M1, the smoothed series is calculated in the same way as smoothed growth in private demand is calculated. The smoothed series for the other aggregates are three-term centred moving averages of the quarterly growth rates. (The averages of the growth rates are used because breaks in the levels series complicate calculations based on averaging the levels first.)

3. Correlation coefficients

The sample correlation coefficients reported in the text have been calculated using the CORR procedure in version 5 of SAS.[19] The sample correlation estimates the true correlation between two variables, x and y, and is calculated as:

where Inline Equation and Inline Equation are the sample means of x and y.

The significance probability of the sample correlation coefficient is calculated by treating

as coming from a t distribution with n−2 degrees of freedom, where n is the sample size.

The correlation coefficients in the paper are calculated using seasonally adjusted data for financial aggregates. Where these have been seasonally adjusted by the authors, the correlations based on the original data (but still adjusted for new banks) are shown in Tables A.1 and A.2.

Table A.1: Correlation Coefficients Between Financial Indicators and Private Demand (Original Data)
Variable lead in quarters(b)
  0 1 2 3 4 5
Bank lending (a) .09 −.07 −.09 −.19 −.24 −.24
Broad money .06 −.04 .25* −.04 −.01 .03
Lending .07 −.19 −.12 .04 −.02 −.01
Credit .11 .11 .05 .11 .11 −.05
(a) Correlations over 1968–87. The correlations for other variables are over the period 1976–1987.
(b) An asterisk indicates significance at the 10 per cent level; two indicates the 5 per cent level.
Table A.2: Correlation Coefficients Between Financial Indicators and Private Demand in Selected Sub-Periods (Original Data)
Indicators Sub-periods(a)
  Lead in
Mar 1968 to
Dec 1980
Dec 1980 to
Dec 1987
Dec 1983 to
Dec 1987
Bank Lending 0 .00 .21 .08
  1 .01 −.06 −.21
  2 −.19 −.11 −.61**
  3 −.12 −.39** −72**
  4 −.35** −.25 −.57**
  5 −.19 −.19 −.44*
Broad Money 0 .13 .36
  1 −.16 −.11
  2 .12 .06
  3 −.16 −.12
  4 −.02 −.40
  5 −.24 −.38
Lending 0 .17 .08
  1 .02 −.24
  2 −.16 −.50**
  3 −.32* −.48*
  4 −.25 −.37
  5 −.48* −.61**
Credit 0 .22 −.02
  1 .06 −.23
  2 −.11 −.38
  3 −.26 −.33
  4 −.23 −.35
  5 −.48** −.69**

(a) An asterisk indicates significance at the 10 per cent level; two indicates the 5 per cent level.


The source of the following is SAS Users Guide: Basics, Version 5 Edition (1985) Cary NC: SAS Institute Inc. [19]