IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Total Factor Productivity and Monetary Policy: Evidence from Conditional Volatility

  • Nicholas Apergis
  • Stephen M. Miller

This paper empirically assesses whether monetary policy and its volatility affect real economic activity through their effect on the aggregate supply side of the macroeconomy. Analysts typically argue that monetary policy either does not affect the real economy (the classical dichotomy) or only affects the real economy in the short run through aggregate demand (new Keynesian or new classical theories). Real business cycle theorists try to explain the business cycle with supply-side productivity shocks. We provide some preliminary evidence about how monetary policy and its volatility affect the aggregate supply side of the macroeconomy through their effect on total factor productivity and its volatility. Total factor productivity provides an important measure of supply-side performance. The results show that monetary policy and its volatility exert a positive and statistically significant effect on the supply side of the macroeconomy. Moreover, the findings buttress the importance of reducing short-run swings in monetary policy variables as well as support the adoption of an optimal money supply rule. Our results also prove consistent with the effective role of monetary policy during the so-called 'Great Moderation' in US gross domestic product volatility beginning in the early 1980s. Copyright 2007 Blackwell Publishing Ltd.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=infi&volume=10&issue=2&year=2007&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 10 (2007)
Issue (Month): 2 (07)
Pages: 131-152

as
in new window

Handle: RePEc:bla:intfin:v:10:y:2007:i:2:p:131-152
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271

Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=1367-0271

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Iscan, Talan & Osberg, Lars, 1998. "The Link between Inflation and Output Variability in Canada: Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 261-72, May.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  3. Jonathan Haskel & Matthew J. Slaughter, 1999. "Trade, Technology and U.K. Wage Inequality," NBER Working Papers 6978, National Bureau of Economic Research, Inc.
  4. R. Anton Braun & Charles L. Evans, 1996. "Seasonal Solow residuals and Christmas: a case for labor hoarding and increasing returns," Working Papers 575, Federal Reserve Bank of Minneapolis.
  5. Lee, Jim, 1999. "The inflation and output variability tradeoff: evidence from a Garch model," Economics Letters, Elsevier, vol. 62(1), pages 63-67, January.
  6. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc.
  7. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  8. Jun, Sangjoon, 1998. "Procyclical Multifactor Productivity: Tests of the Current Theories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 51-63, February.
  9. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
  10. Karras, Georgios & Song, Frank, 1996. "Sources of business-cycle volatility: An exploratory study on a sample of OECD countries," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 621-637.
  11. Coe, D.T. & Helpman, E., 1993. "International R&D Spillovers," Papers 5-93, Tel Aviv.
  12. Basu, Susanto, 1995. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," American Economic Review, American Economic Association, vol. 85(3), pages 512-31, June.
  13. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  14. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  15. Sinai, Allen & Stokes, Houston, 1977. "Real Money Balances as a Variable in the Production Function: A Further Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(2), pages 372-73, May.
  16. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  17. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
  18. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  19. Nourzad, Farrokh, 2002. "Real money balances and production efficiency: a panel-data stochastic production frontier study," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 125-134, March.
  20. Floden, Martin, 2000. "Endogenous monetary policy and the business cycle," European Economic Review, Elsevier, vol. 44(8), pages 1409-1429, August.
  21. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
  22. Susanto Basu, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 719-751.
  23. Abdur Chowdhury & Yingqui Liu, 1995. "Is money more productive in a developing economy?," Applied Economics Letters, Taylor & Francis Journals, vol. 2(4), pages 118-121.
  24. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  25. Finn E. Kydland & Edward C. Prescott, 1989. "Hours and employment variation in business cycle theory," Discussion Paper / Institute for Empirical Macroeconomics 17, Federal Reserve Bank of Minneapolis.
  26. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
  27. Caballero, Ricardo J. & Lyons, Richard K., 1992. "External effects in U.S. procyclical productivity," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 209-225, April.
  28. Yu Hsing, 1996. "An empirical estimation of regional production functions for the U.S. manufacturing industry," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 30(4), pages 351-358.
  29. Satyajit Chatterjee, 1999. "Real business cycles: a legacy of countercyclical policies?," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 17-27.
  30. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  31. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
  32. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  33. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
  34. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
  35. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  36. 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.
  37. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  38. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  39. Miller, Stephen M. & Upadhyay, Mukti P., 2000. "The effects of openness, trade orientation, and human capital on total factor productivity," Journal of Development Economics, Elsevier, vol. 63(2), pages 399-423, December.
  40. Burdekin, Richard C.K. & Denzau, Arthur T. & Keil, Manfred W. & Sitthiyot, Thitithep & Willett, Thomas D., 2004. "When does inflation hurt economic growth? Different nonlinearities for different economies," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 519-532, September.
  41. Satyajit Chatterjee, 1995. "Productivity growth and the American business cycle," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 13-22.
  42. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:intfin:v:10:y:2007:i:2:p:131-152. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.