Has monetary policy become less effective?
AbstractHigh-powered money has been declining relative to nominal GDP in the United States. Does the ability of monetary policy to affect aggregate activity decline as the money-income ratio falls? In this paper, I specify simple model economy, examining the effects that monetary policy actions and financial innovation would have on the equilibrium money-income ratio. The downward trend in the money-income ratio can be accounted for by increasing inflation, falling reserve requirements, or steady financial development. Whereas higher inflation and falling reserve requirements would reduce the potency of monetary policy, monetary policy's effects are invariant to financial innovation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 9906.
Date of creation: 1999
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Woodford, Michael, 1990. "The optimum quantity of money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 20, pages 1067-1152 Elsevier.
- Joseph H. Haslag & Eric R. Young, 1998.
"Money Creation, Reserve Requirements, and Seigniorage,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 677-698, July.
- Peter N. Ireland, 1992.
"Endogenous financial innovation and the demand for money,"
92-03, Federal Reserve Bank of Richmond.
- Ireland, Peter N, 1995. "Endogenous Financial Innovation and the Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 107-23, February.
- McGrattan, Ellen R., 1998. "Trends in velocity and policy expectations : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 305-316, December.
- Harold L. Cole & Lee E. Ohanian, 1998. "The demand for money and the nonneutrality of money," Staff Report 246, Federal Reserve Bank of Minneapolis.
- Bansal, Ravi & Coleman, Wilbur John, II, 1996. "A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1135-71, December.
- Gordon, David B. & Leeper, Eric M. & Zha, Tao, 1998.
"Trends in velocity and policy expectations,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 49(1), pages 265-304, December.
- Mark L. Gertler, 1988.
"Financial Structure and Aggregate Economic Activity: An Overview,"
NBER Working Papers
2559, National Bureau of Economic Research, Inc.
- Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-88, August.
- Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
- Lacker, Jeffrey M. & Schreft, Stacey L., 1996. "Money and credit as means of payment," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 3-23, August.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Brunner, Karl & Meltzer, Allan H, 1972. "Money, Debt, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 951-77, Sept.-Oct.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.