Working Paper: CEPR ID: DP7150
Authors: Szilárd Benk; Max Gillman; Michal Kejak
Abstract: The post-1983 moderation coincided with an ahistorical divergence in the money aggregate growth and velocity volatilities away from the downward trending GDP and inflation volatilities. Using an en dogenous growth monetary DSGE model, with micro-based banking production, enables a contrasting characterization of the two great volatility cycles over the historical period of 1919-2004, and enables this puzzle to be addressed more easily. The volatility divergence is explained by the upswing in the credit volatility that kept money supply variability from translating into inflation and GDP volatility.
Keywords: growth; inflation; money; credit shocks; volatility
JEL Codes: E13; E32; E34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased credit volatility (F65) | insulated the economy from inflation and GDP volatility (E31) |
| money supply shocks (E51) | inflation (E31) |
| increased credit volatility (F65) | moderation of inflation (E31) |
| money shocks (E41) | volatility of endogenous growth rate of output (O41) |
| money shocks (E41) | volatility of inflation (E31) |
| correlation between credit shocks and productivity shocks shifted from negative to positive (O49) | change in economic dynamics (F69) |