What can we learn from Divisia and simple-sum monetary indexes? Structural stability in frequency domain from time-frequency analysis
Yinan Tang, Ping Chen
China Institute, Fudan University, Shanghai, China
Please cite the paper as:
Yinan Tang, Ping Chen, (2018), What can we learn from Divisia and simple-sum monetary indexes? Structural stability in frequency domain from time-frequency analysis, World Economics Association (WEA) Conferences, No. 1 2018, Monetary Policy after the Global Crisis, 19th February to 20th April, 2018
What can we know from different monetary indexes, such as simple-sum and DIvisia index? What information in monetary policy analysis. In 1985- 1988, we discovered empirical and theoretical evidence of economic chaos from monetary indexes M2, DDM2, DDM3, DML, and DSM2. The existence of monetary chaos implies that monetary dynamics is endogenous rather than exogenous mechanism in nature. After 2009 financial crisis, we analyzed cyclic pattern of monetary indexes through HP filter by means of time-frequency (TF) analysis, which is a non-parametric approach in non-stationary time series analysis. We found out that MB (monetary base) did reveal the short-term effect of monetary policy during crisis period (2007-2015), but other indexes, including DM4T, DM4T-, DM3, M2, and M2M from CFS (Center for Financial Stability), show remarkable resilience of frequency pattern in time. This is a further evidence of nonlinear and coherent nature of monetary dynamics that is beyond the scope of the Frisch model of noise-driven business cycles in macro econometrics. Its implication in monetary policy is still an open issue for future study.