Bayesian VAR, Out-of-Sample Forecasting, Granger Causality, Money, Output, Federal Reserve, Volcker
337 International economics 339 Macroeconomics and related topics
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In this note, we use multivariate models estimated with Bayesian techniques and an out-ofsample approach to investigate whether money growth Granger-causes output growth in the United States. We find surprisingly strong evidence for a money-output link over the 1960-2005 period. However, further analysis indicates that this result is likely to be misleading; after the ‘Great moderation’, the Granger-causal role of money appears to have vanished completely.
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