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Does money matter in the IS curve? The case of the UK

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  • Jones, Barry E.
  • Stracca, Livio

Abstract

Narrow and broad money measures (including Divisia aggregates) have been found to have explanatory power for UK output in backward-looking specifications of the IS curve. In this paper, we explore whether or not real balances enter into a forward-looking IS curve for the UK, building on the theoretical framework of Ireland (2004). To do this, we test for additive separability between consumption and money over a sizeable part of the post-ERM period using non-parametric methods. If consumption and money are not additively separable, then real money balances enter into the forward-looking IS curve (the converse does not hold, however). A main finding is that the UK data seem to be broadly consistent with additive separability for the the more recent period from 1999 to 2007. JEL Classification: C14, C43, C63, E21, E41

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0904.

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Date of creation: Jun 2008
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Handle: RePEc:ecb:ecbwps:20080904

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Related research

Keywords: Additive Separability; Divisia Monetary Aggregates; IS Curve; measurement error; Non-Parametric Tests;

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Cited by:
  1. Hjertstrand, Per & Jones, Barry E., 2013. "What Do Revealed Preference Axioms Reveal about Elasticities of Demand?," Working Paper Series 972, Research Institute of Industrial Economics.
  2. Benchimol, Jonathan & Fourçans, André, 2009. "Money in a DSGE framework with an application to the Euro Zone," ESSEC Working Papers DR 09005, ESSEC Research Center, ESSEC Business School.
  3. repec:hal:cesptp:hal-00800082 is not listed on IDEAS

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