Does money matter in the IS curve? The case of the UK
AbstractNarrow 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 InfoPaper provided by European Central Bank in its series Working Paper Series with number 0904.
Date of creation: Jun 2008
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Other versions of this item:
- Barry E. Jones & Livio Stracca, 2008. "Does Money Matter In The Is Curve? The Case Of The Uk," Manchester School, University of Manchester, vol. 76(s1), pages 58-84, 09.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-CBA-2008-07-20 (Central Banking)
- NEP-EEC-2008-07-20 (European Economics)
- NEP-MAC-2008-07-20 (Macroeconomics)
- NEP-MON-2008-07-20 (Monetary Economics)
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- Jonathan Benchimol & André Fourçans, 2010.
"Money and risk aversion in a DSGE framework : a bayesian application to the euro zone,"
- Benchimol, Jonathan & Fourçans, André, 2012. "Money and risk in a DSGE framework: A Bayesian application to the Eurozone," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 95-111.
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- 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.
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