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Effects of monetary variables on real output: sensitivity analysis


  • Habib Ahmed
  • Pami Dua


This paper uses Leamer's sensitivity test in a VAR framework and examines the robustness of the relationship between different monetary and output variables. Output variables at the aggregated level include GDP, consumption, and gross private investment. Disaggregated variables comprise components of consumption (durables, non-durables and services) and investment (business inventories, fixed residential, and fixed nonresidential). All aggregated variables are robustly Granger caused by M2, the federal funds rate and the federal funds 3-months treasury rate spread. At the disaggregated level, only consumption of durables is Granger caused by these variables. Consumption of services, business inventories, and non-residential fixed investment are only Granger caused by money supply variables, while consumption of non-durable goods and residential investment are Granger caused by interest rates and/or interest rate spreads only.

Suggested Citation

  • Habib Ahmed & Pami Dua, 2001. "Effects of monetary variables on real output: sensitivity analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 65-69.
  • Handle: RePEc:taf:apeclt:v:8:y:2001:i:1:p:65-69 DOI: 10.1080/135048501750041321

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    4. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
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