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Abstract

A key argument in Caplin and Leahy (1997) states that the correlation between monetary shocks and output is falling in the variance of the money supply. We demonstrate that this conclusion depends on solving for the correlation in the non-stationary state of the model. In the stationary state, that correlation is initially rising.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0506.pdf
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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0506.

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Date of creation: Jun 2005
Date of revision:
Publication status: Forthcoming in Econometrica.
Handle: RePEc:san:cdmawp:0506

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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
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Web page: http://www.st-andrews.ac.uk/cdma
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Related research

Keywords: Ss pricing; money-output correlations; macroeconomic dynamics.;

Other versions of this item:

Find related papers by JEL classification:

• E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
• E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
• E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

This paper has been announced in the following NEP Reports:

• NEP-ALL-2005-06-14 (All new papers)
• NEP-MAC-2005-06-14 (Macroeconomics)

References

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1. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
2. Caplin, A. & Leahy, J., 1992. "Aggregation and Optimization with State-Dependent Pricing," Harvard Institute of Economic Research Working Papers 1595, Harvard - Institute of Economic Research.
   
   • Andrew Caplin & John Leahy, 1997. "Aggregation and Optimization with State-Dependent Pricing," Econometrica, Econometric Society, vol. 65(3), pages 601-626, May.
   • Caplin, A. & Leahy, J., 1992. "Aggregation and Optimization with State-Dependent Pricing," Discussion Papers 1992_15, Columbia University, Department of Economics.
3. Caplin, A. & Leahy, J., 1989. "State-Dependent Pricing And The Dynamics Of Money And Output," Discussion Papers 1989_32, Columbia University, Department of Economics.
   
   • Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
4. Vladislav Damjanovic & Charles Nolan, 2005. " Aggregate Dynamics with Heterogeneous Agents and State-Dependent Pricing," CDMA Working Paper Series 0505, Centre for Dynamic Macroeconomic Analysis.

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Cited by:

1. Vladislav Damjanovic & Charles Nolan, 2007. " S,s Pricing in a General Equilibrium Model with Heterogeneous Sectors," CDMA Working Paper Series 0709, Centre for Dynamic Macroeconomic Analysis.
2. Zakaria Babutsidze, 2012. "Asymmetric (S,s) Pricing: Implications for Monetary Policy," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 177-204.

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