VELOCITY AND THE VARIABILITY OF MONEY GROWTH: EVIDENCE FROM A VARMA, GARCH-M MODEL

Apostolos Serletis · Akbar Shahmoradi

58 citations0/0 files storedMacroeconomic Dynamics

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Monetary Policy and Economic Impact Financial Risk and Volatility Modeling Economic theories and models

Abstract

This paper uses recent advances in financial econometrics to test the Friedman hypothesis that money supply volatility Granger-causes velocity. Comparisons are made among simple-sum and Divisia velocity series at the M1 and M2 levels of monetary aggregation, using quarterly data from 1959:1 to 2004:3. The conclusion is that the Friedman hypothesis cannot be rejected if money supply volatility is modeled explicitly, using models that capture important volatility effects that previous work has ignored.

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References

1988Testing for a Unit Root in Time Series Regression 1981Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root 1992Testing the null hypothesis of stationarity against the alternative of a unit root 1995Multivariate Simultaneous Generalized ARCH 1993Measuring and Testing the Impact of News on Volatility 1990Modelling the Coherence in Short-Run Nominal Exchange Rates: A Multivariate Generalized Arch Model 1988A Capital Asset Pricing Model with Time-Varying Covariances 1987Time Series Regression with a Unit Root

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2012THE CASE FOR DIVISIA MONEY TARGETING 2012Interest Rates, Leverage, and Money 2013The Optimal Economic Uncertainty Index: A Grid Search Application 2008The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR

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