The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR

Abstract

Structural VAR, Multivariate GARCH, Monetary aggregation, C32, E52, E44,

Money Supply Volatility and the Macroeconomy

“…In extending the work in Serletis and Shahmoradi (2006), Serletis and Rahman (2009) investigate the effects of money growth uncertainty on real economic activity in the USA, in the context of a multivariate framework in which a structural vector autoregression (VAR) is modified to accommodate GARCH-inmean errors, as in Elder (2004) and Elder and Serletis (2010). They use quarterly data over the period from 1959:1 to 2005:4 and provide a comparison among simple-sum, Divisia, and currency equivalent monetary aggregation procedures, using a newer vintage of the MSI documented in Anderson and Buol (2005), at each of the four levels of monetary aggregation-M1, M2, M3, and MZM.…”

The Case for Divisia Money Targeting

“…In this regard, recent empirical research regarding the relationship between the money supply and real economic activity has focused on monetary aggregation issues, motivated by Barnett's (1980) seminal paper, and the role of uncertainty or variability of money growth -see, for example, Serletis and Shahmoradi (2006) and Serletis and Rahman (2009). In particular, Serletis and Shahmoradi (2006) test Friedman's (1983Friedman's ( , 1984 hypothesis that the variability of money growth helps predict velocity, using recent advances in the macroeconometrics literature.…”

“…They …nd that the volatility of unanticipated money growth has a more systematic causal relation to the velocity of money than other measures of volatility and provide evidence in support of Friedman's hypothesis. More recently, Serletis and Rahman (2009) extend the work in Serletis and Shahmoradi (2006) by investigating the e¤ects of money growth uncertainty on real economic activity, in the context of a structural vector autoregression (VAR) that is modi…ed to accommodate multivariate GARCH-in-Mean errors. They …nd evidence that money growth uncertainty has signi…cant negative e¤ects on output growth.…”

Inflation and Welfare in Latin America

“…Finally, as Lucas (2000, p. 270) puts it, a direction for potentially productive research "is to replace M1 with an aggregate in which the different monetary assets are given different weights." Serletis and Virk (2006) have accomplished this for the U.S. economy, by providing a comparison among the official simple-sum monetary aggregates, Barnett's (1980) Divisia aggregates, and Rotemberg's (1991) currency equivalent aggregates-see also Serletis and Rahman (2009) for a detailed discussion of different approaches to monetary aggregation. Investigating how much these issues matter for the Latin American economies is an area for productive future research.…”