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The Success Of The Fed And The Death Of Monetarism

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  • N. KUNDAN KISHOR
  • LEVIS A. KOCHIN

Abstract

"We propose an explanation for the demise of monetarism in the United States. We show that optimal monetary policy would lead to zero correlation between monetary aggregates and inflation if the effect of monetary aggregates on inflation is known precisely and to negative correlations if there is coefficient uncertainty. From 1960 to 1982 the correlation of the monetary base and inflation was positive and so the variance in the growth rate of monetary base in the United States was clearly too large monetary base growth destabilized inflation. However, from 1983 to 2003 variations in monetary base growth were clearly stabilizing and could have been just right." ("JEL" E52, E31, E32) Copyright 2006 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 1 (01)
Pages: 56-70

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:1:p:56-70

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Cited by:
  1. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Provoc─ârile politicii monetare
    [Monetary policy challenges]
    ," MPRA Paper 50261, University Library of Munich, Germany, revised 28 Sep 2013.
  2. Gerald P. Dwyer & Mark Fisher, 2009. "Inflation and monetary regimes," Working Paper 2009-26, Federal Reserve Bank of Atlanta.
  3. Edward Nelson, 2012. "The correlation between money and output in the United Kingdom: resolution of a puzzle," Finance and Economics Discussion Series 2012-29, Board of Governors of the Federal Reserve System (U.S.).
  4. Sanjay K. Chugh & David M. Arseneau, 2008. "Optimal Fiscal and Monetary Policy in Customer Markets," 2008 Meeting Papers 101, Society for Economic Dynamics.
  5. Kishor, N. Kundan & Newiak, Monique, 2009. "The Instability in the Monetary Policy Reaction Function and the Estimation of Monetary Policy Shocks," MPRA Paper 17643, University Library of Munich, Germany.

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