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

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Author Info
Benjamin M. Friedman
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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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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Handle: RePEc:nbr:nberwo:5212

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E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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