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Does Uncertainty Impact Money Growth? A Multivariate GARCH Analysis

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  • Cronin, David

    (Central Bank and Financial Services Authority of Ireland)

  • Kennedy, Bernard

    (Central Bank and Financial Services Authority of Ireland)

Abstract

The impact of uncertainty on money growth has occupied a prominent place in monetary policy analysis in recent years. Some papers examining this issue use ad hoc estimates and measure variability rather than uncertainty. We employ a multivariate GARCH model, which measures uncertainty by the conditional variance of the data series, to investigate whether macroeconomic uncertainty and monetary uncertainty Granger-cause changes in real money. We find that macroeconomic uncertainty impacts positively on US real M2 growth over a one- to two-year horizon but that monetary uncertainty does not cause changes. Instead, our results indicate that real money growth causes monetary uncertainty.

Suggested Citation

  • Cronin, David & Kennedy, Bernard, 2007. "Does Uncertainty Impact Money Growth? A Multivariate GARCH Analysis," Research Technical Papers 6/RT/07, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:6/rt/07
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    References listed on IDEAS

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    3. Serletis, Apostolos & Shahmoradi, Akbar, 2006. "Velocity And The Variability Of Money Growth: Evidence From A Varma, Garch-M Model," Macroeconomic Dynamics, Cambridge University Press, vol. 10(05), pages 652-666, November.
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    6. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    7. Fountas, Stilianos & Karanasos, Menelaos, 2007. "Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 229-250, March.
    8. Lemke, Wolfgang & Greiber, Claus, 2005. "Money demand and macroeconomic uncertainty," Discussion Paper Series 1: Economic Studies 2005,26, Deutsche Bundesbank.
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    11. 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, vol. 19(1), pages 112-116, February.
    12. 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, vol. 21(2), pages 262-266, May.
    13. Choi, Woon Gyu & Oh, Seonghwan, 2003. " A Money Demand Function with Output Uncertainty, Monetary Uncertainty, and Financial Innovations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 685-709, October.
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    Cited by:

    1. Fassil Fanta, 2012. "Macroeconomic uncertainty, excess liquidity and stability of money demand (M3) in Australia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 325-344.
    2. Afanasyeva, Elena, 2013. "Atypical behavior of credit: Evidence from a monetary VAR," IMFS Working Paper Series 70, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    3. Fassil Fanta, 2013. "Financial Deregulation, Economic Uncertainty and the Stability of Money Demand in Australia," Economic Papers, The Economic Society of Australia, vol. 32(4), pages 496-511, December.

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