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Velocity and the Variability of Money Growth : Evidence from Granger-Causality Tests Reevaluated, Working Paper 87-2

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Velocity and the Variability of Money Growth : Evidence from Granger-Causality Tests Reevaluated, Working Paper 87-2

DATE: August 1987

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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 M1 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 M1, then the test results do not support the inference that volatility influences velocity.

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Mehra, Yash P. (Yash Pal). "Velocity and the Variability of Money Growth : Evidence from Granger-Causality Tests Reevaluated, Working Paper 87-2," Working Papers (Federal Reserve Bank of Richmond) (August 1987). https://fraser.stlouisfed.org/title/3942/item/477014, accessed on April 18, 2024.

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NOTE: This is a preprint of an article published in The Journal of Money, Credit, and Banking, v. 21, iss. 2, pp. 262-267, copyright (c) 1989 by the Ohio State University Press. All rights reserved. Reprinted with permission.

PUBLISHER: Federal Reserve Bank of Richmond

PLACE: Richmond

DIGITAL COPY SOURCE: Federal Reserve Bank of Richmond

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RIGHTS: In Copyright (InC)

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