Open Economies Review

, 20:607 | Cite as

The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR

  • Apostolos Serletis
  • Sajjadur Rahman
Research Article


In this paper we extend the work in Serletis and Shahmoradi (Macroecon Dyn 10:652–666, 2006) by investigating the effects of money growth uncertainty on real economic activity, in the context of a multivariate framework in which a structural vector autoregression is modified to accommodate multivariate GARCH-in-Mean errors, as in Elder (J Money, Credit Bank 36:912–928, 2004). The model uses a recursive identification scheme, takes into account the possible interaction between conditional means and variances, isolates the effects of money growth volatility on output growth, and is able to explicitly model heteroskedasticity. We use quarterly data for the United States over the period from 1959:1 to 2005:4, provide a comparison among simple-sum, Divisia, and currency equivalent monetary aggregation procedures at each of the four levels of monetary aggregation—M1, M2, M3, and MZM—and find evidence that money growth volatility has significant negative effects on output growth. Issues of structural stability are addressed and sub-sample analysis is performed. Moreover, the robustness of the results to alternative identification schemes, alternative measures of the level of economic activity, and to the use of monthly observations is also investigated.


Structural VAR Multivariate GARCH Monetary aggregation 

JEL Classification

C32 E52 E44 


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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CalgaryCalgaryCanada

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