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An extended wavelet approach of the money–output link in the United States

Author

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  • Mihai Mutascu

    (Zeppelin University in Friedrichshafen
    West University of Timisoara
    LEO (Laboratoire d’Economie d’Orléans) and Labex Voltaire, CNRS FRE 2014, University of Orléans, Faculté de Droit d’Economie et de Gestion)

  • Alexandre Sokic

    (ESCE International Business School, OMNES Education)

Abstract

The paper examines the link between money and output in the U.S. by using wavelet analysis. The time span covers the period from 1960Q1 to 2021Q1. The main results evidence that money positively leads real output from the late 1960s to 1982, at medium frequency, with the interest rate playing an important role. In contrast, we reveal that real output negatively leads money, at the same medium frequency, but from the late 1990s to 2021. The COVID-19 pandemic generates significant co-movements in the short and medium frequencies, over the period from 2020 to 2021, with output negatively leading money. We underline that Federal Reserve monetary policy operating procedures play an essential role in explaining these findings. The results support using the federal funds rate operating procedure as countercyclical monetary policy measures and implementing unconventional monetary policy tools in times of the effective lower bound. Finally, no relationship between money and output is observed in the long term, while the short term (i.e. high frequency) reveals rather chaotic co-movements. The results remain robust to alternative wavelet tools, higher-frequency datasets, and a Hodrick–Prescott filtered quarterly sample.

Suggested Citation

  • Mihai Mutascu & Alexandre Sokic, 2023. "An extended wavelet approach of the money–output link in the United States," Empirical Economics, Springer, vol. 64(4), pages 1647-1665, April.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:4:d:10.1007_s00181-022-02294-6
    DOI: 10.1007/s00181-022-02294-6
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    More about this item

    Keywords

    Money; GDP; Growth; Interaction; Wavelets; U.S;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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