Interest Rates, Money, and Economic Activity

Forthcoming in: Macroeconomic Dynamics

64 Pages Posted: 21 Oct 2019

See all articles by Cosmas Dery

Cosmas Dery

University of Calgary, Students

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: October 8, 2019


In this paper, we are motivated by the fact that little is known about the relative performance of broad and narrow Divisia monetary aggregates, and by recent work that tests and rejects the appropriateness of the aggregation assumptions that underlie the various monetary aggregates published by the Federal Reserve as well as a large number of monetary asset groupings suggested by earlier studies. We present a comprehensive comparison of narrow versus broad Divisia monetary aggregates within three classes of empirical models. We compute correlations between the cyclical components of Divisia monetary aggregates at different levels of aggregation and the cyclical component of industrial production. We test for Granger causality running from the Divisia aggregates to industrial production and various other measures of real economic activity. We also reestimate a structural VAR based on earlier work by Leeper and Roush (2003) and Belongia and Ireland (2015, 2016), modifying that earlier work by using monthly rather than quarterly data and extending it, both by using broad as well as narrower Divisia monetary aggregates and by allowing for GARCH behavior in the structural shocks.

Keywords: Divisia monetary aggregates; Narrow money; Broad money

JEL Classification: E4; E52; E58

Suggested Citation

Dery, Cosmas and Serletis, Apostolos, Interest Rates, Money, and Economic Activity (October 8, 2019). Forthcoming in: Macroeconomic Dynamics, Available at SSRN:

Cosmas Dery

University of Calgary, Students ( email )


Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
403 220-4091 (Phone)
403 282-5262 (Fax)

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