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How Money Affects Real Output

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  • Manchester, Joyce

Abstract

This paper decomposes the money stock into constituent parts to examine the relationship between monetary variables and real economic activity using vector autoregression for 1954 to 1979. The first decomposition reveals that innovations in money multiplier growth rates are approximately three times more influential in determining real output growth than are monetary base growth innovations. The second decomposition includes components of the money multiplier to identify the importance of actions of the public, the banking community, and the monetary authority. The results suggest that the public and the Fed had a significant impact on influencing real output growth. Copyright 1989 by Ohio State University Press.

Suggested Citation

  • Manchester, Joyce, 1989. "How Money Affects Real Output," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 16-32, February.
  • Handle: RePEc:mcb:jmoncb:v:21:y:1989:i:1:p:16-32
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    Cited by:

    1. Jha, Raghbendra & Prasad Rath, Deba, 2001. "On the Endogeneity of the Money Multiplier in India," Departmental Working Papers 2001-01, The Australian National University, Arndt-Corden Department of Economics.
    2. Loungani, Prakash & Rush, Mark, 1995. "The Effect of Changes in Reserve Requirements on Investment and GNP," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 511-526, May.
    3. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 553-577, July.
    4. Ghartey, Edward E., 2001. "Macroeconomic instability and inflationary financing in Ghana," Economic Modelling, Elsevier, vol. 18(3), pages 415-433, August.
    5. Charles I. Plosser, 1989. "Money and business cycles: a real business cycle interpretation," Proceedings, Federal Reserve Bank of St. Louis.
    6. Scheide, Joachim, 1991. "On the causality between output, money and the terms of trade in Germany," Kiel Working Papers 475, Kiel Institute for the World Economy (IfW).

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