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Money Stock Revisions and Unanticipated Money Growth

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  • Robert J. Barro
  • Zvi Hercowitz

Abstract

An important "empirical regularity" is the strong positive effect of money shocks on output and employment. One strand of business cycle theory relates this finding to temporary confusions between absolute and relative price changes. These models predict positive output effects of unperceived monetary movements, but the quantitative importance of unperceived shifts in nominal aggregates is subject to question. Another strand of theory, based on long-term nominal contracts and analogous price-setting institutions, generates output effects from unanticipated, but not necessarily contemporaneously unperceived, money shocks. However, the real effects of unpredicted, but contemporaneously understood, monetary changes are not obviously consistent with efficient institutional arrangements. The present paper provides some empirical evidence on the two types of theories by analyzing the output effects associated with revisions in the money stock data, where the revisions are interpreted as components of unperceived monetary movements. The revisions turn out to have no significant explanatory power for output. Previous findings that innovations from an estimated money growth equation have a significant output effect remain intact when the revisions are included as separate explanatory variables. Overall, the study provides a small amount of evidence against the special role of unperceived, as opposed to unanticipated, money movements as a determinant of business fluctuations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0329.

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Date of creation: Mar 1979
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Handle: RePEc:nbr:nberwo:0329

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References

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  1. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
  2. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
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Cited by:
  1. Rasmus Fatum & Barry Scholnick, . "Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?," EPRU Working Paper Series 05-14, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Nov 2005.
  2. Boschen, John F. & Grossman, Herschel I., 1982. "Tests of equilibrium macroeconomics using contemporaneous monetary data," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 309-333.
  3. repec:fth:prinin:200 is not listed on IDEAS
  4. Michael Woodford, 2001. "Monetary Policy in the Information Economy," NBER Working Papers 8674, National Bureau of Economic Research, Inc.
  5. S. Rao Aiyagari, 1990. "Deflating the case for zero inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  6. Giampiero M. Gallo & Massimiliano Marcellino, . "Ex Post and Ex Ante Analysis of Provisional Data," Working Papers 141, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Jeremy Greenwood, 2005. "Modern Business Cycle Analysis," RCER Working Papers 520, University of Rochester - Center for Economic Research (RCER).
  8. Dr.Godwin Chukwudum Nwaobi, 2004. "Money And Output Interraction In Nigeria," Macroeconomics 0405012, EconWPA.
  9. Charles Freedman, 1982. "The effect of U.S. policies on foreign countries: the case of Canada," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 97-129.
  10. John F. Boschen & Herschel I. Grossman, 1984. "Monetary Information and Macroeconomic Fluctuations," NBER Working Papers 0498, National Bureau of Economic Research, Inc.
  11. Hartley, Peter R. & Walsh, Carl E., 1991. "Inside money and monetary neutrality," Journal of Macroeconomics, Elsevier, vol. 13(3), pages 395-416.
  12. Victor Zarnowitz, 1997. "Business Cycles Observed and Assessed: Why and How They Matter," NBER Working Papers 6230, National Bureau of Economic Research, Inc.
  13. N. Gregory Mankiw, 1991. "A Quick Refresher Course in Macroeconomics," NBER Working Papers 3256, National Bureau of Economic Research, Inc.
  14. Robert P. Flood & Robert J. Hodrick, 1986. "Money and the Open Economy Business Cycle: A Flexible Price Model," NBER Working Papers 1967, National Bureau of Economic Research, Inc.
  15. John B. Taylor, 1984. "The Role of Expectations in the Choice of Monetary Policy," NBER Working Papers 1044, National Bureau of Economic Research, Inc.
  16. Michael Dotsey & Robert G. King, 1988. "Rational expectations business cycle models: a survey," Economic Review, Federal Reserve Bank of Richmond, issue Mar, pages 3-15.
  17. V. Vance Roley & Carl E. Walsh, 1984. "Unanticipated Money and Interest Rates," NBER Working Papers 1278, National Bureau of Economic Research, Inc.

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