Testing the Friedman and Schwartz Hypothesis using Time Varying Correlation Analysis

Ghosh, Taniya and Parab, Prashant Mehul (2018): Testing the Friedman and Schwartz Hypothesis using Time Varying Correlation Analysis.

Abstract

The study analyses the time varying correlation of money and output using DCC GARCH model for Euro, India, Poland, the UK and the USA. In addition to simple sum money, the model uses Divisia monetary aggregate, theoretically shown as the actual measure of money. The inclusion of Divisia money restores the Friedman and Schwartz hypothesis that money is procyclical. Such procyclical nature of association was not robustly observed in the recent data when simple sum money was used.

• Item Type: MPRA Paper
• Language: English
• Keywords: DCC GARCH, Divisia, Monetary Aggregates, Real Output
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates

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