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Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask This Question?

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  • Benjamin M. Friedman
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    Abstract

    The predominant weight of the existing evidence suggests that the effects of monetary policy on real economic activity are systematic, significant, and sizeable. Yet questions remain, both about individual empirical results and, more broadly, about the different methodological approaches that researchers have used to investigate these effects. This paper addresses the conceptual issues that account for our continuing to ask whether monetary policy has real effects even though, at a certain level, we do 'know' the answer. The paper's overview of theory and evidence suggests that much of the explanation for the continuing tug-of- war between research findings and subsequent questions in this area lies in two sets of limitations, one reflecting how economics conceptualizes behavioral processes and one reflecting how economics draws inferences from observed data.

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    File URL: http://www.nber.org/papers/w5212.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5212.

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    Date of creation: Mar 1997
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    Publication status: published as Monetary Policy in an Integrated World Economy, Horst Siebert, ed., pp. 3- 30, (Tubingen: J.C.B. Mohr (Paul Siebeck), 1996).
    Handle: RePEc:nbr:nberwo:5212

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    Cited by:
    1. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.
    2. Sun, Rongrong, 2013. "Does monetary policy matter in China? A narrative approach," China Economic Review, Elsevier, vol. 26(C), pages 56-74.
    3. Nicola Acocella & Giovanni Di Bartolomeo, 2002. "Sindacati, non neutralitˆ della moneta e giochi di politica economica," Moneta e Credito, Economia civile, vol. 55(219), pages 263-277.
    4. repec:onb:oenbwp:y::i:38:b:1 is not listed on IDEAS
    5. Daniel McCoy, & McMahon, Michael, 2000. "Differences in the Transmission of Monetary Policy in the Euro-Area: An Empirical Approach," Research Technical Papers 5/RT/00, Central Bank of Ireland.
    6. Javier Valles & Jose Vinals, 1999. "On the real effects of the monetary policy: A central banker's view," Working Papers 38, Oesterreichische Nationalbank (Austrian Central Bank).
    7. Jan Gottschalk & Florian Höppner, 2001. "Measuring the Effects of Monetary Policy in the Euro Area: The Role of Anticipated Policy," Kiel Working Papers 1074, Kiel Institute for the World Economy.
    8. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.

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