Open Economies Review

, Volume 26, Issue 2, pp 225–236 | Cite as

On the Output Effects of Monetary Variability

  • Apostolos Serletis
  • Sajjadur Rahman
Research Article


In this paper we provide an update regarding the effects of money growth variability on real economic activity in the United States using monthly data and the new CFS Divisia monetary aggregates, extending the work in Serletis and Shahmoradi (Macroecon Dyn 10:652–666 2006) and Serletis and Rahman (Open Econ Rev 20:607–630 2009, Macroecon Dyn 17:1638–1658 2013). We present evidence that increased uncertainty about the growth rate of the CFS Divisia M1, M2M, and M4+ monetary aggregates is associated with a lower average growth rate of real economic activity in the United States. We also argue that optimal monetary aggregation, as suggested over thirty years ago by Barnett (J Money Credit Bank 14:687–710 1982), will further improve our understanding of how money affects the economy.


CFS divisia monetary aggregates VARMA GARCH-in-mean 

JEL Classifications

C32 E52 E44 


  1. Anderson RG, Buol J (2005) Revisions to User Costs for the Federal Reserve Bank of St, Louis Monetary Services Indices.Federal Reserve Bank of St. Louis. Review 87:735–749Google Scholar
  2. Anderson RG, Jones BE, Nesmith TD (1997a) Monetary Aggregation Theory and Statistical Index Numbers. Federal Reserve Bank of St.Louis. Review 79:31–51Google Scholar
  3. Anderson RG, Jones BE, Nesmith TD (1997b) Building New Monetary Services Indexes:Concepts, Data and Methods. Federal Reserve Bank of St. Louis. Review 79:53–82Google Scholar
  4. Anderson RG, Jones BE (2011) A Comprehensive Revision of the U.S. Monetary Services (Divisia) Indexes.Federal Reserve Bank of St. Louis. Review 93:325–359Google Scholar
  5. Barnett WA (1980) Economic Monetary Aggregates: An Application of Aggregation and Index Number Theory. J Econ 14:11–48CrossRefGoogle Scholar
  6. Barnett WA (1982) The Optimal Level of Monetary Aggregation. J Money Credit Bank 14:687–710CrossRefGoogle Scholar
  7. Barnett WA (2014) Friedman and Divisia Monetary Measures. In: Cord R, Hammond D (eds) Milton Friedman: Contributions to Economics and Public Policy. Oxford University Press forthcomingGoogle Scholar
  8. Barnett WA, Chauvet M (2009) International Financial Aggregation and Index Number Theory: A Chronological Half-century Empirical Overview. Open Econ Rev 20:1–37CrossRefGoogle Scholar
  9. Barnett WA, Liu J, Mattson RS, van den Noort J (2013) The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources. Open Econ Rev 24:101–124CrossRefGoogle Scholar
  10. Belongia MT, Ireland PN (2013) Instability: Monetary and Real. Boston College Working Papers in Economics 830. Department of Economics, Boston CollegeGoogle Scholar
  11. Blinder AS (2013) Exit to What? The Status Quo Ante or Some New Normal? In Exit Strategy. Geneva Reports on the World Economy 15.Geneva: International Center for Monetary and Banking Studies, pp 5–11Google Scholar
  12. Bloom N (2014) Fluctuations in Uncertainty. J Econ Perspect 28:153–176CrossRefGoogle Scholar
  13. Cesa-Bianchi A, Pesaran MH, Rebucci A (2014) Uncertainty and Economic Activity: A Global Perspective. CESIFO Work Pap No: 4736Google Scholar
  14. Chrystal KA, MacDonald R (1994) Empirical Evidence on the Recent Behavior and Usefulness of Simple-Sum and Weighted Measures of the Money Stock. Federal Reserve Bank of St. Louis. Review 76:73–109Google Scholar
  15. Friedman M (1960) A Program for Monetary Stability. Fordham University Press, New YorkGoogle Scholar
  16. Friedman M (1983) Monetary Variability:The United States and Japan. J Money Credit Bank 15:339–343CrossRefGoogle Scholar
  17. Friedman M (1984) Lessons fron the 1979–1982 Monetary Policy Experiment. Am Econ Rev Pap Proc 74:397–400Google Scholar
  18. Grier KB, Henry ÓT, Olekalns N, Shields K (2004) The Asymmetric Effects of Uncertainty on Inflation and Output Growth. J Appl Econ 19:551–565CrossRefGoogle Scholar
  19. (2008). International Monetary Fund. Divisia Money, Monetary and Financial Statistics:Compilation Guide. International Monetary Fund Publications Services, Washington,D.CGoogle Scholar
  20. Ljung T, Box G (1979) On a Measure of Lack of Fit in Time Series Models. Biometrica 66:66–72CrossRefGoogle Scholar
  21. Mishkin FS (2013) Exit to What? In Exit Strategy. Geneva Reports on the World Economy 15.Geneva: International Center for Monetary and Banking StudiesGoogle Scholar
  22. Serletis A, Gogas P (2014) Divisia Monetary Aggregates, the Great Ratios, and Classical Money Demand Functions. J Money, Credit Bank 46:229–241CrossRefGoogle Scholar
  23. Serletis A, Rahman S (2009) The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR. Open Econ Rev 20:607–630CrossRefGoogle Scholar
  24. Serletis A, Rahman S (2013) The Case for Divisia Money Targeting. Macroecon Dyn 17:1638–1658CrossRefGoogle Scholar
  25. Serletis A, Shahmoradi A (2006) Velocity the Variability of Money Growth:Evidence from a VARMA, GARCH-M Model. Macroecon Dyn 10:652–666CrossRefGoogle Scholar
  26. Simons HC (1936) Rules versus Authorities in Monetary Policy. J Polit Econ 64:1–30CrossRefGoogle Scholar
  27. Tavlas GS (2014) In Old Chicago: Simons, Friedman and the Development of Monetary-Policy Rules. Becker Friedman Institute Working Paper No. 2014-02Google Scholar
  28. Wyplosz C (2013) Introduction and Acknowledgements In Exit Strategy. Geneva Reports on the World Economy 15. Geneva: International Center for Monetary and Banking Studies: 1Google Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CalgaryCalgaryCanada

Personalised recommendations