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So You Want to Be a Monetarist!

Summary:
Consider the velocity of M2… Figure 1: Velocity of M2, defined as nominal GDP divided by M2. NBER defined recession dates peak-to-trough shaded gray. Source: BEA, Federal Reserve, NBER and author’s calculations. This ratio fails to reject the unit root null using a standard ADF test (constant, trend, using BIC to choose the lag length), a Elliot-Rothenberg-Stock DF test, and rejects a trend stationary null using a Kwiatkowski-Phillips-Schmidt-Shin test. A Bai-Perron test for structural breaks ( of L+1 vs L sequentially  determined breaks, max breaks =5) indicates 5 breaks. ’nuff said.

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consider the velocity of M2…

So You Want to Be a Monetarist!

Figure 1: Velocity of M2, defined as nominal GDP divided by M2. NBER defined recession dates peak-to-trough shaded gray. Source: BEA, Federal Reserve, NBER and author’s calculations.

This ratio fails to reject the unit root null using a standard ADF test (constant, trend, using BIC to choose the lag length), a Elliot-Rothenberg-Stock DF test, and rejects a trend stationary null using a Kwiatkowski-Phillips-Schmidt-Shin test.

A Bai-Perron test for structural breaks ( of L+1 vs L sequentially  determined breaks, max breaks =5) indicates 5 breaks.

’nuff said.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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