Does Uncertainty Impact Money Growth? A Multivariate GARCH Analysis

The impact of uncertainty on money growth has occupied a prominent place in monetary policy analysis in recent years. Some papers examining this issue use ad hoc estimates and measure variability rather than uncertainty. The authors employ a multivariate GARCH model, which measures uncertainty by the conditional variance of the data series, to investigate whether macroeconomic uncertainty and monetary uncertainty Granger-cause changes in real money. They find that macroeconomic uncertainty impacts positively on US real M2 growth over a one-to two-year horizon but that monetary uncertainty does not cause changes. Instead, the results indicate that real money growth causes monetary uncertainty.