There are two parts in this problem:

a)(9 points) Go to the websitehttps://www.bankofcanada.ca/rates/banking-and-financial-statistics/selected-monetary-aggregates-and-their-components-formerly-e1/and obtain

MONTHLY

data for the period 1990 2020

January 1990 to December 2020

for:

• Currency outside banks (Seasonally adjusted): variable id=V37148
• 1
• +
• M
• 1
• +
• , (gross) (Seasonally adjusted): variable id=V37151
• 2
• M
• 2
• (gross) (Seasonally adjusted): variable id=V41552796_E1

Scroll down and click ``CSV''to download the data to an Excel file. Use Excel or any other software to plot the three variables over time and indicate which of the three is the

narrowest

monetary aggregate and which one is the

broadest

monetary aggregates.Explain why the three aggregates are different.

b)(16 points) Go to the websitehttps://www.bankofcanada.ca/rates/price-indexes/cpi/and obtain

MONTHLY

data for the period 1995 2020

January 1995 to December 2020

for the Total CPI, (seasonally adjusted): variable id=V41690914. Now use these CPI data and the

1

+

M

1

+

data from part (a) to calculate the annual growth rate of both

1

+

M

1

+

and the consumer price index (CPI) for the period 1996 2020

January 1996 to November 2020

using the following formula:

=100

1

1

G

r

o

w

t

h

X

m

o

n

t

h

y

e

a

r

=

100

X

m

o

n

t

h

y

e

a

r

X

m

o

n

t

h

y

e

a

r

1

X

m

o

n

t

h

y

e

a

r

1

For example, the variable

X

in April of 2007 would be

2007

X

A

p

r

i

l

2007

and for that reason, its growth rate in that month is equal to

2007

=100

2007

2006

2006

G

r

o

w

t

h

X

A

p

r

i

l

2007

=

100

X

A

p

r

i

l

2007

X

A

p

r

i

l

2006

X

A

p

r

i

l

2006

What is the relationship (correlation) between

1

+

M

1

+

and consumer price index (CPI) in levels (the values of

1

+

M

1

+

and the CPI index)?What is the relationship (correlation) between them when we use annual growth rates rather than levels? Do not forget to

attach the graphs to your assignment

.