Is Money Useful in the Conduct of Monetary Policy?

FRB Richmond Economic Quarterly, Vol. 86, No. 4, Fall 2000, pp. 23-48

26 Pages Posted: 28 Nov 2012

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Carl Lantz

Independent

Larry Santucci

Federal Reserve Bank of Philadelphia

Date Written: 2000

Abstract

To be useful as policy indicators, the monetary aggregates M1 and M2 must either (1) provide information on the current state of the economy or (2) help predict future values of economic variables that are of concern to the policymakers. Statistical analysis shows that these aggregates perform poorly in the first task but somewhat better in the second. They work poorly as information providers because the underlying money demand functions upon which their performance depends lack the required statistical properties of temporal stability and precision-in-estimation. They work better, however, as forecasters of future economic activity, M2 more so than M1.

Suggested Citation

Dotsey, Michael and Lantz, Carl and Santucci, Larry, Is Money Useful in the Conduct of Monetary Policy? (2000). FRB Richmond Economic Quarterly, Vol. 86, No. 4, Fall 2000, pp. 23-48, Available at SSRN: https://ssrn.com/abstract=2126593

Michael Dotsey

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
804-697-8201 (Phone)
804-697-8255 (Fax)

Carl Lantz

Independent

Larry Santucci (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
2155746014 (Phone)

HOME PAGE: http://https://www.philadelphiafed.org/our-people/larry-santucci

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