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DEPENDENCE STRUCTURE BETWEEN MONEY AND ECONOMIC ACTIVITY: A MARKOV-SWITCHING COPULA VEC APPROACH

Published online by Cambridge University Press:  10 June 2021

Apostolos Serletis and
Libo Xu
Apostolos Serletis*
Affiliation:
University of Calgary
Libo Xu
Affiliation:
University of San Francisco
*
Address correspondence to: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Alberta T2N 1N4, Canada. E-mail: Serletis@ucalgary.ca. Phone: (403) 220-4092. Fax: (403) 282-5262.
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Abstract

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This paper examines correlation and dependence structures between money and the level of economic activity in the USA in the context of a Markov-switching copula vector error correction model. We use the error correction model to focus on the short-run dynamics between money and output while accounting for their long-run equilibrium relationship. We use the Markov regime-switching model to account for instabilities in the relationship between money and output, and also consider different copula models with different dependence structures to investigate (upper and lower) tail dependence.

Keywords

Divisia Monetary AggregatesMarkov Regime SwitchingDependenceCopula

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 8 , December 2022, pp. 2141 - 2160
Copyright
© Cambridge University Press 2021

Footnotes

This paper examines correlation and dependence structures between money and the level of economic activity in the USA in the context of a Markov-switching copula vector error correction model. We use the error correction model to focus on the short-run dynamics between money and output while accounting for their long-run equilibrium relationship. We use the Markov regime-switching model to account for instabilities in the relationship between money and output, and also consider different copula models with different dependence structures to investigate (upper and lower) tail dependence.

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