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Money and Output: A Test of Reverse Causation

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  • Coleman, Wilbur John, II

Abstract

This paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output. Money is endogenous because both monetary policy and deposit creation are endogenous. Parameters are selected according to the simulated moments estimation technique. While the estimated model succeeds along some dimensions in matching properties of postwar U.S. data, its failure to match key patterns of lead-lag correlations seems to cast doubt on the ability of endogenous money determination, by itself, to quantitatively account for the observed money-output correlations. Copyright 1996 by American Economic Association.

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Bibliographic Info

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

Volume (Year): 86 (1996)
Issue (Month): 1 (March)
Pages: 90-111

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Handle: RePEc:aea:aecrev:v:86:y:1996:i:1:p:90-111

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Cited by:
  1. Sustek, Roman, 2010. "Monetary aggregates and the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 451-465, May.
  2. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
  3. Fehr, Ernst & Tyran, Jean-Robert, 2000. "Does Money Illusion Matter? An Experimental Approach," CEPR Discussion Papers 2561, C.E.P.R. Discussion Papers.
  4. Peter N. Ireland, 2002. "Endogenous Money or Sticky Prices?," NBER Working Papers 9390, National Bureau of Economic Research, Inc.
  5. David Cuberes & William R. Dougan, 2010. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," Working Papers. Serie AD 2010-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
  7. Michael T. Belongia & Peter N. Ireland, 2002. "The Own-Price of Money and a New Channel of Monetary Transmission," NBER Working Papers 9341, National Bureau of Economic Research, Inc.
  8. Scott Freeman & Finn Kydland, 1998. "Monetary aggregates and output," Working Paper 9813, Federal Reserve Bank of Cleveland.
  9. Mary G. Finn, 1996. "A theory of the capacity utilization/inflation relationship," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 67-86.
  10. Scheffel, Eric, 2008. "A Credit-Banking Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Cardiff Economics Working Papers E2008/30, Cardiff University, Cardiff Business School, Economics Section.
  11. Coleman, Wilbur II, 1997. "Equilibria in Distorted Infinite-Horizon Economies with Capital and Labor," Journal of Economic Theory, Elsevier, vol. 72(2), pages 446-461, February.

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