Velocity and the Variability of Money Growth: Evidence from Granger-Causality Tests Reevaluated

15 Pages Posted: 27 Oct 2012

See all articles by Yash P. Mehra

Yash P. Mehra

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: August 1, 1987

Abstract

Hall and Nobel (1987) use the Granger-causality test to show that volatility influences velocity, leading them to conclude that the recent decline in the velocity of Ml is due to increased volatility of money growth which is alleged to be caused by the Federal Reserve's new operating procedures. This note shows that such a conclusion is unwarranted, because the causality result reported in their paper is not robust. When the test is implemented either using first differences of the volatility variable or using the volatility and velocity variables that are based on the broad definition of money or over the sample period that includes the 1985-86 episode of the decline in the velocity of Ml, then the test results do not support the inference that volatility influences velocity.

Suggested Citation

Mehra, Yash P., Velocity and the Variability of Money Growth: Evidence from Granger-Causality Tests Reevaluated (August 1, 1987). Journal of Money, Credit, and Banking, Vol. 21, No. 2, 1989, Federal Reserve Bank of Richmond Working Paper No. 87-2, Available at SSRN: https://ssrn.com/abstract=2123516 or http://dx.doi.org/10.2139/ssrn.2123516

Yash P. Mehra (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

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