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Have Credit Card Services Become Important to Monetary Aggregation? An Application of Sign Restricted Bayesian VAR

Author

Listed:
  • William Barnett

    (Department of Economics, University of Kansas, Lawrence, KS 66045, USA and Center for Financial Stability, New York City, NY 10036, USA)

  • Hyun Park

    (Department of Economics, Tulane University, New Orleans, LA 70123, USA)

Abstract

The purpose of this paper is to estimate the relationship among a primary set of economic variables, including two types of monetary aggregates: simple sum M2 and credit-card-augmented Divisia inside money services. The importance of that comparison has grown as the use of credit cards in purchase transactions has expanded. The data period includes the Great Recession, which was heavily associated with finance and thereby especially relevant to this study. The basic methodology in this paper is VAR-Sign Restrictions estimation. VAR is a well-known method to analyze inter-dependency among economic variables. By applying VAR-Sign Restrictions, we analyze how economic variables behave, positively or negatively, toward differently defined shocks. Imposing signs on the direction of economic variable responses to shocks is based on economic prior beliefs, using Bayesian estimation. Our results provide deeper insights into the relative merits of the two types of monetary aggregates as indicators.

Suggested Citation

  • William Barnett & Hyun Park, 2023. "Have Credit Card Services Become Important to Monetary Aggregation? An Application of Sign Restricted Bayesian VAR," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202304, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:202304
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    File URL: http://www2.ku.edu/~kuwpaper/2023Papers/202304.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit-Card-Augmented Divisia Monetary Aggregate; VAR; Sign Restrictions; Bayesian Estimation; Mixed-Frequency VAR; aggregation theory;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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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