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Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals

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  • Thomas J. Sargent
  • Paolo Surico

Abstract

By extending his data, we document the instability of low-frequency regression coefficients that Lucas (1980) used to express the quantity theory of money. We impute the differences in these regression coefficients to differences in monetary policies across periods. A DSGE model estimated over a subsample like Lucas's implies values of the regression coefficients that confirm Lucas's results for his sample period. But perturbing monetary policy rule parameters away from the values estimated over Lucas's subsample alters the regression coefficients in ways that reproduce their instability over our longer sample. (JEL C51, E23, E31, E43, E51, E52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.109
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 1 (February)
Pages: 109-28

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:1:p:109-28

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  1. Peter N. Ireland, 2008. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," NBER Working Papers 14098, National Bureau of Economic Research, Inc.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
  3. Chowdhury, Ibrahim & Schabert, Andreas, 2008. "Federal reserve policy viewed through a money supply lens," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 825-834, May.
  4. Peter N. Ireland, 2002. "Endogenous Money or Sticky Prices?," NBER Working Papers 9390, National Bureau of Economic Research, Inc.
  5. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  6. Whiteman, Charles H, 1984. "Lucas on the Quantity Theory: Hypothesis Testing without Theory," American Economic Review, American Economic Association, vol. 74(4), pages 742-49, September.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  8. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, vol. 94(1), pages 190-217, March.
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  1. Teoria Quantitativa da Moeda, morta e enterrada?
    by "O" Anonimo in A Mão Visível on 2011-02-10 22:14:00
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