Money and macroeconomic performance: Revisiting divisia money

Ali F. Darrat, Marc C. Chopin, Bento J. Lobo

Research output: Contribution to journalArticle

7 Scopus citations

Abstract

Recent research suggests that the relation between money and the macroeconomy has sharply weakened in the U.S. after 1980. We reexamine this alleged breakdown by testing for cointegration between the macroeconomy and simple-sum and Divisia monetary aggregates. We check the robustness of our results by modeling multiple key breakpoints around the early 1980s. Unlike the case of simple-sum monetary aggregates, the evidence is overwhelming in its support for cointegration between Divisia money and macroeconomic variables, which persists despite several policy shifts and dramatic financial innovations in the post-1980 period. These results support Divisia money over simple-sum monetary aggregates as a guide in the implementation of monetary policy.

Original languageEnglish (US)
Pages (from-to)93-101
Number of pages9
JournalReview of Financial Economics
Volume14
Issue number2
DOIs
StatePublished - Jan 1 2005
Externally publishedYes

Keywords

  • Cointegration
  • Divisia money
  • Dual user cost index
  • Financial innovations
  • Policy shifts
  • Simple-sum money

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Money and macroeconomic performance: Revisiting divisia money'. Together they form a unique fingerprint.

  • Cite this