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INTEREST RATES, MONEY, AND ECONOMIC ACTIVITY

Published online by Cambridge University Press:  10 December 2019

Cosmas Dery  and
Apostolos Serletis
Cosmas Dery
Affiliation:
University of Calgary
Apostolos Serletis*
Affiliation:
University of Calgary
*
Address correspondence to: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Alberta, T2N 1N4, USA. e-mail: [email protected], Phone: (403) 220-4092, Fax: (403) 282-5262, Web: http://econ.ucalgary.ca/serletis.htm
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Abstract

In this paper, we are motivated by the fact that little is known about the relative performance of broad and narrow Divisia monetary aggregates, and by recent work that tests and rejects the appropriateness of the aggregation assumptions that underlie the various monetary aggregates published by the Federal Reserve as well as a large number of monetary asset groupings suggested by earlier studies. We present a comprehensive comparison of narrow versus broad Divisia monetary aggregates within three classes of empirical models. We compute correlations between the cyclical components of Divisia monetary aggregates at different levels of aggregation and the cyclical component of industrial production. We test for Granger causality running from the Divisia aggregates to industrial production and various other measures of real economic activity. We also reestimate a structural vector autoregression based on earlier work by Leeper and Roush [(2003) Journal of Money, Credit, and Banking 35, 1217–1256] and Belongia and Ireland [(2015) Journal of Business and Economic Statistics 33, 255–269; (2016) Journal of Money, Credit and Banking 48, 1223–1266], modifying that earlier work using monthly rather than quarterly data and extending it, both using broad as well as narrower Divisia monetary aggregates and by allowing for Generalized autoregressive conditional heteroskedasticity (GARCH) behavior in the structural shocks.

Keywords

Divisia Monetary AggregatesNarrow MoneyBroad Money
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 7 , October 2021 , pp. 1842 - 1891
Copyright
© Cambridge University Press 2019

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Footnotes

This paper is based on Chapter 1 of Cosmas Dery’s Ph.D. thesis at the University of Calgary. We would like to thank two referees, William Barnett, Peter Ireland, Juan Rubio-Ramirez, and Jonas Arias for comments that greatly improved the paper. We also thank the following members of Cosmas’s dissertation committee: David Walls and Atsuko Tanaka.

References

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