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US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle

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  • Benk, Szilárd
  • Gillman, Max
  • Kejak, Michal

Abstract

The post-1983 moderation coincided with an ahistorical divergence in the money aggregate growth and velocity volatilities away from the downward trending GDP and inflation volatilities. Using an en dogenous growth monetary DSGE model, with micro-based banking production, enables a contrasting characterization of the two great volatility cycles over the historical period of 1919-2004, and enables this puzzle to be addressed more easily. The volatility divergence is explained by the upswing in the credit volatility that kept money supply variability from translating into inflation and GDP volatility.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7150.

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Date of creation: Jan 2009
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Handle: RePEc:cpr:ceprdp:7150

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Keywords: Growth; Inflation; Money and credit shocks; Volatility;

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Cited by:
  1. Basu, Parantap & Gillman, Max & Pearlman, Joseph, 2009. "Inflation, Human Capital and Tobin's q," Cardiff Economics Working Papers E2009/16, Cardiff University, Cardiff Business School, Economics Section.
  2. Douglas Sutherland & Peter Hoeller, 2013. "Growth-promoting Policies and Macroeconomic Stability," OECD Economics Department Working Papers 1091, OECD Publishing.
  3. Basu, Parantap & Gillman, Max & Pearlman, Joseph, 2012. "Inflation, human capital and Tobin's q," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1057-1074.
  4. Douglas Sutherland & Peter Hoeller, 2014. "Growth Policies and Macroeconomic Stability," OECD Economic Policy Papers 8, OECD Publishing.
  5. Balázs Égert & Douglas Sutherland, 2012. "The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality," OECD Economics Department Working Papers 938, OECD Publishing.

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