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The relationship of simple sum and Divisia monetary aggregates with real GDP and inflation: a wavelet analysis for the US

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  • Scharnagl, Michael
  • Mandler, Martin

Abstract

We apply wavelet analysis to compare the relationship between simple sum and Divisa monetary aggregates with real GDP and CPI infl ation for the U.S. using data from 1967 to 2013. Wavelet analysis allows to account for variations in the relationships both across the frequency spectrum and across time. While we find evidence for a weaker comovement of Divisia compared to simple sum monetary aggregates with real GDP the relationship between money growth and infl ation is estimated to be much tighter between Divisia monetary aggregates and CPI infl ation than for simple sum aggregates, in particular at lower frequencies. Furthermore, for the Divisia indices for broader monetary aggregates (M2, M2M, MZM) we estimate a stable lead before CPI in flation of about four to five years.

Suggested Citation

  • Scharnagl, Michael & Mandler, Martin, 2015. "The relationship of simple sum and Divisia monetary aggregates with real GDP and inflation: a wavelet analysis for the US," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112879, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:112879
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    Cited by:

    1. Meng, Xiangcai & Huang, Chia-Hsing, 2021. "The time-frequency analysis of conventional and unconventional monetary policy: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 59(C).

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    More about this item

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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