MONEY GROWTH VOLATILITY AND THE DEMAND FOR MONEY IN GERMANY - FRIEDMANS VOLATILITY HYPOTHESIS REVISITED

Money Growth Volatility and the Demand for Money in Germany: Friedman' s Volatility Hypothesis Revisited. - Recently, the Bundesbank claimed that monetary targeting has become considerably more difficult by the increased volatility of short-term money growth. The present paper inv estigates the impact of German money growth volatility on income veloc ity and money demand in view of Friedman's money growth volatility hyp othesis. Granger-causality tests provide some evidence for a velocity/ volatility linkage. However, the estimation of volatility-augmented mo ney demand functions reveals that - in contrast to Friedman's hypothes is; increased money growth volatility lowered the demand for money.