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The Roles of Money and Credit in Macroeconomic Analysis

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  • Benjamin M. Friedman

Abstract

This paper considers the implications, for macroeconomic modeling and for monetary policy, of the interrelationships among money, credit and nonfinancial economic activity. Data for the United States since World War II show that the volume of outstanding credit is as closely related to economic activity as is the stock of money, and moreover that neither money nor credit is sufficient to account fully for the effect of financial markets in determining real economic activity. Instead, what appears to matter is an interaction between money and credit. This result is consistent with a macroeconomic modeling strategy that deals explicitly with both the money market and the credit market, and with a monetary policy framework based on the joint use of a money growth target and a credit growth target.

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  • Benjamin M. Friedman, 1981. "The Roles of Money and Credit in Macroeconomic Analysis," NBER Working Papers 0831, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0831
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    1. Terrence Kinal & Jonathan Ratner, 1986. "A VAR Forecasting Model of a Regional Economy: Its Construction and Comparative Accuracy," International Regional Science Review, , vol. 10(2), pages 113-126, August.
    2. Thomas B. Fomby & William C. Gruben & James G. Hoehn, 1984. "Some time series methods of forecasting the Texas economy," Working Papers 8402, Federal Reserve Bank of Dallas.
    3. Hassan, Faiza & Qayyum, Abdul, 2013. "Modelling the Demand for Bank Loans by Private Business Sector in Pakistan," MPRA Paper 55366, University Library of Munich, Germany, revised Apr 2014.
    4. Benjamin M. Friedman, 1984. "Money, Credit and Interest Rates in the Business Cycle," NBER Working Papers 1482, National Bureau of Economic Research, Inc.
    5. Xing, Xiaoyun & Xiong, Wanting & Chen, Liujun & Chen, Jiawei & Wang, Yougui & Stanley, H. Eugene, 2018. "Money circulation and debt circulation: A restatement of quantity theory of money," Economics Discussion Papers 2018-1, Kiel Institute for the World Economy (IfW Kiel).

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