Money and Business Cycles: a Real Business Cycle Interpretation

44 Pages Posted: 17 Oct 2007 Last revised: 22 May 2008

See all articles by Charles I. Plosser

Charles I. Plosser

Federal Reserve Bank of Philadelphia; National Bureau of Economic Research (NBER)

Date Written: January 1990

Abstract

This paper focuses on the role of money in economic fluctuations. While money may play an important role in market economies, its role as an important impulse to business cycles remains a highly controversial hypothesis. For years economists have attempted to construct monetary theories of the business cycle with only limited empirical success. Alternatively, recent real theories of the cycle have taken the view that to a first approximation independent variations in the nominal quantity of outside money are neutral. This paper finds that the empirical evidence for a monetary theory of the cycle is weak. Not only do variations in nominal money explain very little of subsequent movements in real activity, but what explanatory power exists arises from variations in endogenous components of money.

Suggested Citation

Plosser, Charles I., Money and Business Cycles: a Real Business Cycle Interpretation (January 1990). NBER Working Paper No. w3221. Available at SSRN: https://ssrn.com/abstract=468364

Charles I. Plosser (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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