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Money growth volatility and the demand for money in Germany: Friedman's volatility hypothesis revisited

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  • Brüggemann, Imke
  • Nautz, Dieter

Abstract

Recently, the Bundesbank claimed that monetary targeting has become considerably more diffcult by the increased volatility of short-term money growth. The present paper investigates the impact of German money growth volatility on income velocity and money demand in view of Friedman's money growth volatility hypothesis. Granger-causality tests provide some evidence for a velocity-volatility linkage. However the estimation of volatility-augmented money demand functions reveals that - in contrast to Friedman's hypothesis - increased money growth volatility lowered the demand for money. --

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Bibliographic Info

Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1997,23.

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Date of creation: 1997
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Handle: RePEc:zbw:sfb373:199723

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Keywords: ARCH models; Money growth volatility; demand for money;

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  1. Mehra, Yash P, 1989. "Velocity and the Variability of Money Growth: Evidence from Granger-Causality Tests: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 21(2), pages 262-66, May.
  2. Wolters, Jürgen & Teräsvirta, Timo & Lütkepohl, Helmut, 1996. "Modelling the Demand for M3 in the unified Germany," Working Paper Series in Economics and Finance 113, Stockholm School of Economics.
  3. Bera, Anil K & Higgins, Matthew L, 1993. " ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 7(4), pages 305-66, December.
  4. Zellner, Arnold, 1979. "Causality and econometrics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 10(1), pages 9-54, January.
  5. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 52(1-2), pages 5-59.
  6. Katsimbris, George M. & Miller, Stephen M., 1993. "Velocity variability: Directly an interest-rate driven phenomenon," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 33(4), pages 423-437.
  7. Hall, Thomas E & Noble, Nicholas R, 1987. "Velocity and the Variability of Money Growth: Evidence from Granger-Causality Tests: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 19(1), pages 112-16, February.
  8. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, Elsevier, vol. 19(2-3), pages 367-378, August.
  9. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, Econometric Society, vol. 55(5), pages 1035-56, September.
  10. repec:wop:humbsf:1996-24 is not listed on IDEAS
  11. Friedman, Milton, 1983. "Monetary Variability: United States and Japan," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 15(3), pages 339-43, August.
  12. Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(4), pages 485-518, November.
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Cited by:
  1. Kumar, Saten & Webber, Don J., 2010. "Australasian money demand stability: Application of structural break tests," MPRA Paper 27569, University Library of Munich, Germany.
  2. Mohsen Bahmani-Oskooee & Sahar Bahmani, 2014. "Monetary Uncertainty and Demand for Money in Korea," Asian Economic and Financial Review, Asian Economic and Social Society, Asian Economic and Social Society, vol. 4(3), pages 317-324, March.

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