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Detrending and the money-output link: International evidence

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  • Hafer, R. W.
  • Kutan, Ali M.

Abstract

An important policy question is whether nominal money is relatively more useful than interest rates in explaining movements in real output. Previous analyses usually rely only on U.S. data or other financially developed countries from a specific region, such as the EU. This study examines the empirical relation between money, interest rates, and output across a sample of 20 countries, including industrial countries from different regions as well as economically and financially less-developed countries. On the basis of estimating an unconstrained, four-variable VAR model, the weight of evidence indicates that rejecting money as a potentially informative tool in setting monetary policy is unwarranted.

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Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 19-2001.

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Date of creation: 2001
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Handle: RePEc:zbw:zeiwps:b192001

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  1. Ben Bernanke, 1990. "On the Predictive Power of Interest Rates and Interest Rate Spreads," NBER Working Papers 3486, National Bureau of Economic Research, Inc.
  2. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  3. Edward Nelson, 2000. "Direct effects of base money on aggregate demand: theory and evidence," Bank of England working papers 122, Bank of England.
  4. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Another Look at the Evidence on Money-Income Causality," NBER Working Papers 3856, National Bureau of Economic Research, Inc.
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  8. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  9. Hafer, R W & Kutan, A M, 1997. "More Evidence on the Money-Output Relationship," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 48-58, January.
  10. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-72, March.
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  17. Davis, Mark S. & Tanner, J. Ernest, 1997. "Money and economic activity revisited," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 955-968, December.
  18. 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.
  19. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16.
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Cited by:
  1. Joe Haslag & R.W. Hafer & Garett Jones, 2003. "The Effect of Monetary Policy on Economic Output," Working Papers 0311, Department of Economics, University of Missouri.
  2. Asongu, Simplice A, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," MPRA Paper 48494, University Library of Munich, Germany.
  3. Josef C. Brada & Ali M. Kutan, 2002. "The End of Moderate Inflation in Three Transition Economies?," William Davidson Institute Working Papers Series 433, William Davidson Institute at the University of Michigan.
  4. Asongu Simplice, 2013. "How would monetary policy matter in the proposed African monetary unions? Evidence from output and prices," Working Papers 13/013, African Governance and Development Institute..
  5. Simplice A. Asongu, 2014. "Correcting Inflation with Financial Dynamic Fundamentals: Which Adjustments Matter in Africa?," Journal of African Business, Taylor & Francis Journals, vol. 15(1), pages 64-73, April.
  6. Asongu Simplice, 2013. "New Empirics of monetary policy dynamics: evidence from the CFA franc zones," Working Papers 13/016, African Governance and Development Institute..

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