Putting 'M' Back in Monetary Policy

47 Pages Posted: 11 Jun 2003

See all articles by Eric M. Leeper

Eric M. Leeper

University of Virginia ; Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER); George Mason University - Mercatus Center

Jennifer E. Roush

Board of Governors of the Federal Reserve System

Date Written: April 2003

Abstract

Money demand and the stock of money have all but disappeared from monetary policy analyses. Remarkably, it is more common for empirical work on monetary policy to include commodity prices than to include money. This paper establishes and explores the empirical fact that whether money enters a model and how it enters matters for inferences about policy impacts. The way money is modeled significantly changes the size of output and inflation effects and the degree of inertia that inflation exhibits following a policy shock. We offer a simple and conventional economic interpretation of these empirical facts.

Suggested Citation

Leeper, Eric Michael and Roush, Jennifer E., Putting 'M' Back in Monetary Policy (April 2003). Available at SSRN: https://ssrn.com/abstract=390661 or http://dx.doi.org/10.2139/ssrn.390661

Eric Michael Leeper

University of Virginia ( email )

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National Bureau of Economic Research (NBER)

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George Mason University - Mercatus Center ( email )

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Jennifer E. Roush (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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