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The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry

Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2

Publication ,  Chapter
Hoover, KD; Demiralp, S; Perez, SJ
September 1, 2009

The M2 monetary aggregate is monitored by the Federal Reserve, using a broad brush theoretical analysis and an informal empirical analysis. This chapter illustrates empirical identification of an eleven-variable system, in which M2 and the factors that the Fed regards as causes and effects are captured in a vector autoregression. Taking account of cointegration, the methodology combines recent developments in graph-theoretical causal search algorithms with a general-to-specific search algorithm to identify a fully specified structural vector autoregression (SVAR). The SVAR is used to examine the causes and effects of M2 in a variety of ways. The chapter concludes that while the Fed has rightly identified a number of special factors that influence M2 and while M2 detectably affects other important variables, there is 1) little support for the core quantity-theoretic approach to M2 used by the Fed; and 2) M2 is a trivial linkage in the transmission mechanism from monetary policy to real output and inflation.

Duke Scholars

DOI

ISBN

9780199237197

Publication Date

September 1, 2009
 

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Hoover, K. D., Demiralp, S., & Perez, S. J. (2009). Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2. In The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry. https://doi.org/10.1093/acprof:oso/9780199237197.003.0002
Hoover, K. D., S. Demiralp, and S. J. Perez. “Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2.” In The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry, 2009. https://doi.org/10.1093/acprof:oso/9780199237197.003.0002.
Hoover KD, Demiralp S, Perez SJ. Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2. In: The Methodology and Practice of Econometrics: A Festschrift in Honour of David F Hendry. 2009.
Hoover, K. D., et al. “Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2.” The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry, 2009. Scopus, doi:10.1093/acprof:oso/9780199237197.003.0002.
Hoover KD, Demiralp S, Perez SJ. Empirical Identification of the Vector Autoregression: The Causes and Effects of US M2. The Methodology and Practice of Econometrics: A Festschrift in Honour of David F Hendry. 2009.
Journal cover image

DOI

ISBN

9780199237197

Publication Date

September 1, 2009