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Output Fluctuations and Monetary Shocks

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  • Vincent Reinhart
  • Carmen Reinhart

Abstract

Using annual data for Colombia over the last thirty years and a new battery of econometric techniques, we test opposing theories that explain macroeconomic fluctuations: The neoclassical synthesis, which posits that, in the presence of temporary price rigidity, an unanticipated monetary expansion produces output gains that erode over time with increases in the price level; and an alternative explanation, which focuses on “real” technological or preference shocks as the sources of output changes. The coefficients from these systems are used to examine two basic propositions: the long-run neutrality of nominal quantities with respect to permanent movements in the money stock; and the short-run sensitivity of output to inflation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 91/35.

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Length: 34
Date of creation: 01 Mar 1991
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Handle: RePEc:imf:imfwpa:91/35

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References

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  1. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
  2. Peter Montiel & Jonathan David Ostry, 1991. "Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries," IMF Working Papers 91/29, International Monetary Fund.
  3. Olivier J. Blanchard, 1987. "Why Does Money Affect Output? A Survey," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 453, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Edwards, Sebastian, 1984. "Coffee, money and inflation in Colombia," World Development, Elsevier, Elsevier, vol. 12(11-12), pages 1107-1117.
  5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  6. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 363-80, June.
  7. Jere R. Behrman & James Hanson, 1979. "Short-Term Macroeconomic Policy in Latin America," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number behr79-1.
  8. Mohsin S. Khan, 1980. "Monetary Shocks and the Dynamics of Inflation (Les chocs monétaires et la dynamique de l'inflation) (Los "choques" monetarios y la dinámica de la inflación)," IMF Staff Papers, Palgrave Macmillan, vol. 27(2), pages 250-284, June.
  9. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, Elsevier, vol. 40(1), pages 161-181, January.
  10. David H. Small & Richard D. Porter, 1989. "Understanding the behavior of M2 and V2," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 244-254.
  11. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  12. Bhargava, Alok, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(3), pages 369-84, July.
  13. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  15. Leiderman, Leonardo, 1984. "On the monetary-macro dynamics of Colombia and Mexico," Journal of Development Economics, Elsevier, Elsevier, vol. 14(1), pages 183-201.
  16. Ohanian, Lee E., 1988. "The spurious effects of unit roots on vector autoregressions : A Monte Carlo study," Journal of Econometrics, Elsevier, Elsevier, vol. 39(3), pages 251-266, November.
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Citations

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Cited by:
  1. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, Elsevier, vol. 46(1), pages 145-161, February.
  2. Juan Carlos Echeverry G., 1996. "Short Run Savings Fluctuations And Export Shocks.Theory And Evidence For Latin-America," BORRADORES DE ECONOMIA 003498, BANCO DE LA REPÚBLICA.
  3. Ansari, M. I., 1996. "Monetary vs. fiscal policy: Some evidence from vector autoregression for India," Journal of Asian Economics, Elsevier, Elsevier, vol. 7(4), pages 677-698.
  4. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 133(3), pages 458-478, September.
  5. Maria Soledad Martinez Peria, 2002. "The Impact of Banking Crises on Money Demand and Price Stability," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 1.
  6. Carlos Esteban Posada, . "Dinero, Interés, Inflación y Fluctuaciones económicas en Colombia desde 1958," Borradores de Economia 044, Banco de la Republica de Colombia.
  7. José R Sánchez-Fung, 2000. "Money Demand, PPP and Macroeconomic Dynamics in a Small Developing Economy," Studies in Economics, Department of Economics, University of Kent 0015, Department of Economics, University of Kent.
  8. Raju, Sudhakar S. & Melo, Alberto, 2003. "Money, real output, and deficit effects of coffee booms in Colombia," Journal of Policy Modeling, Elsevier, Elsevier, vol. 25(9), pages 963-983, December.
  9. Reinhart, Carmen, 1993. "Output fluctuations and monetary shocks in Colombia: A reply to Garcia," MPRA Paper 13354, University Library of Munich, Germany.

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