Monetary Regimes, Money Supply, and the US Business Cycle since 1959
71 Pages Posted: 8 Jan 2019 Last revised: 11 Jan 2019
Date Written: December 5, 2018
The monetary authority’s choice of operating procedure has significant implications for the role of monetary aggregates and interest rate policy on the business cycle. Using a dynamic general equilibrium model, we show that the type of endogenous monetary regime, together with the interaction between money supply and demand, captures well the actual behavior of a monetary economy—the United States. The results suggest that the evolution toward a stricter interest rate–targeting regime renders central bank balance-sheet expansions ineffective. In the context of the 2007–2009 Great Recession, a more flexible interest rate–targeting regime would have led to a significant monetary expansion and more rapid economic recovery in the United States.
Keywords: monetary regimes, monetary policy, money demand, US business cycle
JEL Classification: E32, E41, E42, E52, E58, N12
Suggested Citation: Suggested Citation