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

Hollander, Hylton, Monetary Regimes, Money Supply, and the US Business Cycle since 1959 (December 5, 2018). Mercatus Research Paper, December 2018. Available at SSRN: or

Hylton Hollander (Contact Author)

Stellenbosch University ( email )

Stellenbosch, WesternCape 7600
South Africa
+27218082478 (Phone)


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