Copulas and the Quantity Theory of Money

46 Pages Posted: 20 Sep 2019 Last revised: 13 Jan 2020

See all articles by Ernst Juerg Weber

Ernst Juerg Weber

The University of Western Australia - UWA Business School

Date Written: September 19, 2019

Abstract

The quantity theory of money remains a cornerstone of modern macroeconomics that provides a benchmark for the long-run behaviour of macroeconomic models. The direct empirical evidence for it is, however, less conclusive than suggested by scatterplots and the exaggerated correlations between money growth and inflation that can be found in the macroeconomic literature. Copulas with upper tail dependence show a considerably weaker relationship between money growth and inflation than Pearson’s r. Even so, the quantity theory will continue to be part of macroeconomics because economics as a science is driven both by observation and by the inherent structure of the accumulated body of economic theory.

Keywords: copulas, Kendall's tau, quantity theory of money, monetary policy

JEL Classification: C14, C58, E13, E31, E41, E51, E52, E58

Suggested Citation

Weber, Ernst Juerg, Copulas and the Quantity Theory of Money (September 19, 2019). Available at SSRN: https://ssrn.com/abstract=3456812 or http://dx.doi.org/10.2139/ssrn.3456812

Ernst Juerg Weber (Contact Author)

The University of Western Australia - UWA Business School ( email )

Crawley, WA 6009
Australia

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