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Money and Output: A Test of Reverse Causation

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  • Coleman, Wilbur John, II

Abstract

This paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output. Money is endogenous because both monetary policy and deposit creation are endogenous. Parameters are selected according to the simulated moments estimation technique. While the estimated model succeeds along some dimensions in matching properties of postwar U.S. data, its failure to match key patterns of lead-lag correlations seems to cast doubt on the ability of endogenous money determination, by itself, to quantitatively account for the observed money-output correlations. Copyright 1996 by American Economic Association.

Suggested Citation

  • Coleman, Wilbur John, II, 1996. "Money and Output: A Test of Reverse Causation," American Economic Review, American Economic Association, vol. 86(1), pages 90-111, March.
  • Handle: RePEc:aea:aecrev:v:86:y:1996:i:1:p:90-111
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    Citations

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    Cited by:

    1. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    2. Coleman, Wilbur II, 1997. "Equilibria in Distorted Infinite-Horizon Economies with Capital and Labor," Journal of Economic Theory, Elsevier, vol. 72(2), pages 446-461, February.
    3. Finn E. Kydland & Scott Freeman, 2000. "Monetary Aggregates and Output," American Economic Review, American Economic Association, pages 1125-1135.
    4. Cuberes, David & Dougan, William, 2009. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," MPRA Paper 17744, University Library of Munich, Germany.
    5. repec:feu:wfeppr:y:2014:m:11:d:0:i:18 is not listed on IDEAS
    6. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
    7. Sustek, Roman, 2010. "Monetary aggregates and the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 451-465, May.
    8. Ernst Fehr & Jean-Robert Tyran, 1999. "Does Money Illusion Matter? An Experimental Approach," CESifo Working Paper Series 184, CESifo Group Munich.
    9. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
    10. Michael T. Belongia & Peter N. Ireland, 2002. "The Own-Price of Money and a New Channel of Monetary Transmission," NBER Working Papers 9341, National Bureau of Economic Research, Inc.
    11. Mary G. Finn, 1996. "A theory of the capacity utilization/inflation relationship," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 67-86.
    12. Scheffel, Eric, 2008. "A Credit-Banking Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Cardiff Economics Working Papers E2008/30, Cardiff University, Cardiff Business School, Economics Section.

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