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Money's Role in the Monetary Business Cycle

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  • Ireland, Peter N

Abstract

A small, structural model of the monetary business cycle implies that real money balances enter into a correctly-specified, forward-looking IS curve if and only if they enter into a correctly-specified, forward-looking Phillips curve. The model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation. Maximum likelihood estimates of the model's parameters take both these considerations into account, but still suggest that money plays a minimal role in the monetary business cycle.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 6 (December)
Pages: 969-83

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Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:6:p:969-83

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. McCallum, Bennett T, 2000. "Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 870-904, November.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  3. Ireland, Peter N., 1997. "A small, structural, quarterly model for monetary policy evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 83-108, December.
  4. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  5. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  6. Bennett T. McCallum & Edward Nelson, . "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," GSIA Working Papers 1997-71, Carnegie Mellon University, Tepper School of Business.
  7. 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.
  8. Bennett T. McCallum, 1999. "Analysis of the Monetary Transmission Mechanism: Methodological Issues," NBER Working Papers 7395, National Bureau of Economic Research, Inc.
  9. Nelson, Edward, 2001. "Direct Effects of Base Money on Aggregate Demand: Theory and Evidence," CEPR Discussion Papers 2666, C.E.P.R. Discussion Papers.
  10. Bennett T. McCallum, 1982. "Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations," NBER Working Papers 0559, National Bureau of Economic Research, Inc.
  11. Glenn D. Rudebusch & Lars E.O. Svensson, 1999. "Eurosystem monetary targeting: lessons from U.S. data," Working Paper Series 99-13, Federal Reserve Bank of San Francisco.
  12. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  13. Parkin, Michael, 1978. "A Comparison of Alternative Techniques of Monetary Control under Rational Expectations," The Manchester School of Economic & Social Studies, University of Manchester, vol. 46(3), pages 252-87, September.
  14. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
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