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Output Fluctuations and Monetary Shocks: Evidence from Colombia

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  • Reinhart, Carmen
  • Reinhart, Vincent

Abstract

Using annual data for Colombia over the last 30 years, we test competing theories that explain macroeconomic fluctuations: the neoclassical synthesis, which posits that in the presence of temporary price rigidity, an unanticipated monetary expansion produces output gains that erode over time with increases in the price level; and an alternative explanation, which focuses on "real" technological or preference shocks as sources of output changes. Coefficients from this system are used to examine the long-run neutrality of nominal quantities with respect to permanent movements in the money stock and the short-run sensitivity of output to inflation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6980.

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Date of creation: Dec 1991
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Publication status: Published in IMF Staff Papers 4.38(1991): pp. 705-735
Handle: RePEc:pra:mprapa:6980

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Keywords: Colombia; inflation; growth; exchange rates; VAR;

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References

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  1. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  2. Peter J. Montiel & Jonathan D. Ostry, 1991. "Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 872-900, December.
  3. Plosser, C.I., 1989. "Understanding Real Business Cycles," Papers 89-03, Rochester, Business - General.
  4. Edwards, Sebastian, 1984. "Coffee, money and inflation in Colombia," World Development, Elsevier, vol. 12(11-12), pages 1107-1117.
  5. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
  6. Leiderman, Leonardo, 1984. "On the monetary-macro dynamics of Colombia and Mexico," Journal of Development Economics, Elsevier, vol. 14(1), pages 183-201.
  7. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  8. N. Gregory Mankiw, 1989. "Real Business Cycles: A New Keynesian Perspective," NBER Working Papers 2882, National Bureau of Economic Research, Inc.
  9. Mohsin S. Khan, 1980. "Monetary Shocks and the Dynamics of Inflation (Les chocs monétaires et la dynamique de l'inflation) (Los "choques" monetarios y la dinámica de la inflación)," IMF Staff Papers, Palgrave Macmillan, vol. 27(2), pages 250-284, June.
  10. Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc.
  11. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  12. Mussa, Michael, 1981. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review, American Economic Association, vol. 71(5), pages 1020-27, December.
  13. Ohanian, Lee E., 1988. "The spurious effects of unit roots on vector autoregressions : A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 39(3), pages 251-266, November.
  14. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  15. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
  16. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  17. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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Citations

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Cited by:
  1. Juan Carlos Echeverry, 1996. "Short run savings fluctuations and export shocks theory and evidence for Latin America," BORRADORES DE ECONOMIA 003497, BANCO DE LA REPÚBLICA.
  2. Reinhart, Carmen, 1993. "Output fluctuations and monetary shocks in Colombia: A reply to Garcia," MPRA Paper 13354, University Library of Munich, Germany.
  3. Martinez Peria, Maria Soledad, 2000. "The impact of banking crises on money demand and price stability," Policy Research Working Paper Series 2305, The World Bank.
  4. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, vol. 46(1), pages 145-161, February.
  5. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 458-478, September.
  6. Gonzalo Hernández, 2011. "Terms of Trade and Output Fluctuations in Colombia," UMASS Amherst Economics Working Papers 2011-04, University of Massachusetts Amherst, Department of Economics.
  7. Raju, Sudhakar S. & Melo, Alberto, 2003. "Money, real output, and deficit effects of coffee booms in Colombia," Journal of Policy Modeling, Elsevier, vol. 25(9), pages 963-983, December.

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