Download This PaperMoney Growth Variability and Output: Evidence with Credit Card-Augmented Divisia Monetary Aggregates
Forthcoming in: Studies in Nonlinear Dynamics & Econometrics
19 Pages Posted: 13 May 2020
Date Written: March 20, 2019
Abstract
We reexamine the effects of the variability of money growth on output, raised by Mascaro and Meltzer (1983), in the era of the increasing use of alternative payments, such as credit cards. Using a bivariate VARMA, GARCH-in-Mean, asymmetric BEKK model, we find that the volatility of the credit card-augmented Divisia M4 monetary aggregate has a statistically significant negative impact on output from 2006:7 to 2019:3. However, there is no effect of the traditional Divisia M4 growth volatility on real economic activity. We conclude that the balance sheet targeting monetary policies after the financial crisis in 2007-2009 should pay more attention on the broad credit card-augmented Divisia M4 aggregate to address economic and financial stability.
Keywords: Credit card-augmented Divisia monetary aggregates, Multivariate GARCH-in-mean, Optimal monetary aggregation
JEL Classification: C32, E52, E44
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