Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?

53 Pages Posted: 30 Oct 2006

See all articles by Arturo Estrella

Arturo Estrella

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: November 1996

Abstract

We examine the potential policy role of monetary aggregates by attempting to use them as effectively as possible in the analysis of empirical relationships. We consider three possible roles: as information variables, as indicators of policy actions and as instruments in a policy rule. These require successively stronger and more stable relationships between the aggregates and the final policy targets. Our results show that in the United States since 1979, the monetary aggregates fall considerably short of those requirements, and results with German M3 are hardly more favorable. We also investigate whether empirical relationships are not reflective of causal relationships because of the use of these variables in counter cyclical policy. The results are reasonably consistent with that notion in the case of interest rates, but not in the case of the aggregates.

Suggested Citation

Estrella, Arturo and Mishkin, Frederic S., Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy? (November 1996). NBER Working Paper No. w5845. Available at SSRN: https://ssrn.com/abstract=225630

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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