Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask this Question?

41 Pages Posted: 15 Aug 2000

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1995

Abstract

The predominant weight of the existing evidence suggests that the effects of monetary policy on real economic activity are systematic, significant, and sizeable. Yet questions remain, both about individual empirical results and, more broadly, about the different methodological approaches that researchers have used to investigate these effects. This paper addresses the conceptual issues that account for our continuing to ask whether monetary policy has real effects even though, at a certain level, we do 'know' the answer. The paper's overview of theory and evidence suggests that much of the explanation for the continuing tug-of- war between research findings and subsequent questions in this area lies in two sets of limitations, one reflecting how economics conceptualizes behavioral processes and one reflecting how economics draws inferences from observed data.

Suggested Citation

Friedman, Benjamin M., Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask this Question? (August 1995). NBER Working Paper No. w5212. Available at SSRN: https://ssrn.com/abstract=225276

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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