Money growth volatility and the demand for money in Germany: Friedman’s volatility hypothesis revisited
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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Volume (Year): 133 (1997)
Issue (Month): 3 (September)
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