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Putting 'M' Back in Monetary PolicyEric M. LeeperIndiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER); Monash University, Department of Economics Jennifer E. RoushFederal Reserve Board - Division of Monetary Affairs March 2003 NBER Working Paper No. w9552 Abstract: Money demand and the stock of money have all but disappeared from monetary policy analyses. This paper is an empirical contribution to the debate over the role of money in monetary policy analysis. The paper models supply and demand interactions in the money market and finds evidence of an essential role for money in the transmission of policy. Across sub-samples, it finds evidence consistent with the following inferences: (1) the money stock and the interest rate jointly transmit monetary policy; (2) for a given exogenous change in the nominal interest rate, the estimated impact of policy on economic activity increases monotonically with the response of the money supply; (3) the path of the real rate is not sufficient for determining policy impacts.
Number of Pages in PDF File: 48 working papers seriesDate posted: March 13, 2003Suggested CitationContact Information
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