Velocity variability calculated using divisia monetary indices is not necessarily lower than velocity variability calculated using traditional monetary aggregates (ie M2).
figure 1: Log GDP divided by M2 (bold black), MZM divisor (tan), M1M divisor (green), M2M divisor (red), M3M divisor (pink), M4M divisor (light blue), all 1967 firsts quarter=0. Numbers in (brackets) are standard deviations from 1967-2019. Recession peak-to-trough dates as defined by NBER are grayed out. Source: BEA (released in Q2 2023), Federal Reserve via FRED, Center for Financial StabilityNBER, and author’s calculations.
None of the log velocity variables could reject the ADF root of unit zero (intercept, trend), nor the KPSS trend stationary zero. The standard deviation of M2 velocity is the smallest. The first difference is that the standard M2 speed is about the same as the divisia M2 speed.
