Reconsidering the Role of Money for Output, Prices and Interest Rates
SSE/EFI Economics and Finance Working Paper No. 514
32 Pages Posted: 25 Mar 2003
Date Written: November 19, 2002
Abstract
New Keynesian models of monetary policy assign no role to monetary aggregates, in the sense that the level of output, prices, and interest rates can be determined without knowledge of the quantity of money. We evaluate the empirical validity of this prediction by studying the effects of shocks to monetary aggregates using an identified VAR. Shocks to monetary aggregates are isolated by means of identifying restrictions suggested by this class of models. Contrary to the theoretical predictions, shocks to broad monetary aggregates have substantial and persistent effects on output and prices.
Keywords: New-Keynesian models, LM shocks, VAR, Block-exogeneity
JEL Classification: E31, E52, E58
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Paper statistics
Recommended Papers
-
The Future of Monetary Aggregates in Monetary Policy Analysis
-
Global Monetary Policy Shocks in the G5: A Svar Approach
By Joao Miguel Sousa and Andrea Zaghini
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
A Money Demand System for Euro Area M3
By Claus Brand and Nuno Cassola
