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Testing the Friedman–Schwartz hypothesis using time-varying correlation analysis

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  • Taniya Ghosh
  • Prashant Mehul Parab

Abstract

This study analyses the time-varying correlation of money and output using the DCC GARCH model for the Euro, India, Poland, the UK and the US. Apart from simple sum money, this model uses Divisia monetary aggregate, which is theoretically shown as the actual measure of monetary services. The inclusion of Divisia money affirms the Friedman–Schwartz hypothesis that money is procyclical. The procyclical nature of association was not robustly observed in recent data when a simple sum money was used.

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  • Taniya Ghosh & Prashant Mehul Parab, 2019. "Testing the Friedman–Schwartz hypothesis using time-varying correlation analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 26(20), pages 1694-1699, November.
    • Handle: RePEc:taf:apeclt:v:26:y:2019:i:20:p:1694-1699
    DOI: 10.1080/13504851.2019.1591594
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    Cited by:

    1. Barnett, William A. & Ghosh, Taniya & Adil, Masudul Hasan, 2022. "Is money demand really unstable? Evidence from Divisia monetary aggregates," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 606-622.
    2. Szafranek, Karol, 2021. "Evidence on time-varying inflation synchronization," Economic Modelling, Elsevier, vol. 94(C), pages 1-13.

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