US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle

Benk, Szilard; Gillman, Max; Kejak, Michal

US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle

CEPR Discussion Paper No. DP7150

45 Pages Posted: 18 Feb 2009

See all articles by Szilard Benk

Max Gillman

Central European University (CEU) - Department of Economics

Michal Kejak

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: January 2009

Abstract

The post-1983 moderation coincided with an ahistorical divergence in the money aggregate growth and velocity volatilities away from the downward trending GDP and inflation volatilities. Using an endogenous growth monetary DSGE model, with micro-based banking production, enables a contrasting characterization of the two great volatility cycles over the historical period of 1919-2004, and enables this puzzle to be addressed more easily. The volatility divergence is explained by the upswing in the credit volatility that kept money supply variability from translating into inflation and GDP volatility.

Keywords: Growth, Inflation, Money and credit shocks, Volatility

JEL Classification: E13, E32, E34

Suggested Citation: Suggested Citation

Benk, Szilard and Gillman, Max and Kejak, Michal, US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle (January 2009). CEPR Discussion Paper No. DP7150. Available at SSRN: https://ssrn.com/abstract=1345676