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The case for Divisia monetary statistics: A Bayesian time-varying approach

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  • Ellington, Michael

Abstract

The zero lower bound and quantitative easing policies have rekindled interest in the link between monetary aggregates and the business cycle. This paper argues, on the basis of Bayesian time-varying coefficient VAR models that use Divisia indexes, that money is more closely linked to the business cycle, as well as forecasting economic activity more accurately, than existing literature claims. Moreover, the relationship between money and economic activity is considerably more pronounced during periods of economic distress, such as in the Great Recession.

Suggested Citation

  • Ellington, Michael, 2018. "The case for Divisia monetary statistics: A Bayesian time-varying approach," Journal of Economic Dynamics and Control, Elsevier, vol. 96(C), pages 26-41.
    • Handle: RePEc:eee:dyncon:v:96:y:2018:i:c:p:26-41
    DOI: 10.1016/j.jedc.2018.10.001
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    Cited by:

    1. Belongia, Michael T. & Ireland, Peter N., 2022. "A reconsideration of money growth rules," Journal of Economic Dynamics and Control, Elsevier, vol. 135(C).
    2. Kostyantyn Anatolievich Malyshenko & Majid Mohammad Shafiee & Vadim Anatolievich Malyshenko & Marina Viktorovna Anashkina, 2023. "Dynamics of the securities market in the information asymmetry context: developing a methodology for emerging securities markets," Papers 2307.04140, arXiv.org.
    3. Dery, Cosmas & Serletis, Apostolos, 2021. "Interest Rates, Money, And Economic Activity," Macroeconomic Dynamics, Cambridge University Press, vol. 25(7), pages 1842-1891, October.
    4. Barnett, William A. & Park, Hyun & Park, Sohee, 2021. "The Barnett Critique," MPRA Paper 108413, University Library of Munich, Germany.
    5. William A. Barnett & Van H. Nguyen, 2021. "Constructing Divisia Monetary Aggregates for Singapore," JRFM, MDPI, vol. 14(8), pages 1-15, August.
    6. Lubos Hanus & Lukas Vacha, 2018. "Time-Frequency Response Analysis of Monetary Policy Transmission," Working Papers IES 2018/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2018.
    7. William A. Barnett & Sohee Park, 2023. "Forecasting inflation and output growth with credit‐card‐augmented Divisia monetary aggregates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(2), pages 331-346, March.
    8. Ioannis Andreadis & Athanasios D. Fragkou & Theodoros E. Karakasidis & Apostolos Serletis, 2023. "Nonlinear dynamics in Divisia monetary aggregates: an application of recurrence quantification analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-17, December.
    9. Serletis, Apostolos & Xu, Libo, 2020. "Functional monetary aggregates, monetary policy, and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).

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    More about this item

    Keywords

    Time-varying parameter VAR; Frequency domain; Divisia money; Monetary policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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