Money Growth Volatility and the Macroeconomy

Abstract

This study analyzes the effects of variability in money growth on the macroeconomy, for the period 1961:1-1984:4, within the context of a vector autoregressive model that contains variables typically included in a small macro model. Variance decompositions and historical decompositions are used to assess the impact of money growth variability. The variance decompositions suggest substantial effects of money growth variability on the long-term interest rate, output, and the price level. Historical decompositions for 1979:4-1984:4 suggest substantial effects of money growth variability on the interest rate and output, but smaller effects on the price level are found. Copyright 1988 by Ohio State University Press.