Wavelet Multiresolution Analysis of the Liquidity Effect and Monetary Neutrality

Olivier Habimana

Computational Economics, 2019, vol. 53, issue 1, No 4, 85-110

Abstract: Abstract This paper employs the maximum overlap discrete wavelet transform to obtain timescale decompositions of monetary aggregates, short-term interest rates and output to investigate two propositions in monetary economics: the liquidity effect and the long-run neutrality of money. Evidence from correlation and Granger causality over five timescales suggests that the liquidity effect is statistically significant in both the US and Sweden’s economies, with a shorter time horizon in the US than in Sweden. There is no evidence of monetary neutrality in both economies; at finest timescales, output Granger causes money in Sweden, whereas it is the other way around in the US. At long time horizons, there is a feedback between money and output in both economies. Key to our findings is that monetary disturbances have significant real effects and these effects last longer than it is assumed in real business cycle models.

Keywords: Granger causality; Liquidity effect; Monetary neutrality; Multiresolution analysis (MRA); Wavelets (search for similar items in EconPapers)
JEL-codes: C63 E43 E52 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s10614-017-9725-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:53:y:2019:i:1:d:10.1007_s10614-017-9725-1

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-017-9725-1

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().