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Nonlinear dynamics in Divisia monetary aggregates: an application of recurrence quantification analysis

Author

Listed:
  • Ioannis Andreadis

    (International School of The Hague)

  • Athanasios D. Fragkou

    (University of Thessaly)

  • Theodoros E. Karakasidis

    (University of Thessaly)

  • Apostolos Serletis

    (University of Calgary)

Abstract

We construct recurrence plots (RPs) and conduct recurrence quantification analysis (RQA) to investigate the dynamic properties of the new Center for Financial Stability (CFS) Divisia monetary aggregates for the United States. In this study, we use the latest vintage of Divisia aggregates, maintained within CFS. We use monthly data, from January 1967 to December 2020, which is a sample period that includes the extreme economic events of the 2007–2009 global financial crisis. We then make comparisons between narrow and broad Divisia money measures and find evidence of a nonlinear but reserved possible chaotic explanation of their origin. The application of RPs to broad Divisia monetary aggregates encompasses an additional drift structure around the global financial crisis in 2008. Applying the moving window RQA to the growth rates of narrow and broad Divisia monetary aggregates, we identify periods of changes in data-generating processes and associate such changes to monetary policy regimes and financial innovations that occurred during those times.

Suggested Citation

  • Ioannis Andreadis & Athanasios D. Fragkou & Theodoros E. Karakasidis & Apostolos Serletis, 2023. "Nonlinear dynamics in Divisia monetary aggregates: an application of recurrence quantification analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-17, December.
    • Handle: RePEc:spr:fininn:v:9:y:2023:i:1:d:10.1186_s40854-022-00419-5
    DOI: 10.1186/s40854-022-00419-5
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