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Monetary policies and low-frequency manifestations of the quantity theory

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Author Info
Sargent, Thomas () (New York University)
Surico, Paolo () (Monetary Policy Committee Unit, Bank of England)

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Abstract

To detect the quantity theory of money, we follow Lucas (1980) by looking at scatter plots of filtered time series of inflation and money growth rates and interest rates and money growth rates. Like Whiteman (1984), we relate those scatter plots to sums of two-sided distributed lag coefficients constructed from fixed-coefficient and time-varying VARs for US data from 1900-2005. We interpret outcomes in terms of population values of those sums of coefficients implied by two DSGE models. The DSGE models make the sums of coefficients depend on the monetary policy rule via cross-equation restrictions of a type that Lucas (1972) and Sargent (1971) emphasised in the context of testing the natural unemployment rate hypothesis. When the US data are extended beyond Lucas's 1955-75 period, the scatter plots mutate in ways that we attribute to prevailing monetary policy rules.

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File URL: http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0026.pdf
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Publisher Info
Paper provided by Monetary Policy Committee Unit, Bank of England in its series Discussion Papers with number 26.

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Length: 72 pages
Date of creation: 08 Dec 2008
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Handle: RePEc:mpc:wpaper:0026

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Related research
Keywords: Quantity theory; policy regimes; time-varying VAR;

Find related papers by JEL classification:
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative

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