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When Money Matters

Author

Listed:
  • José Luis Cendejas Bueno
  • Félix-Fernando Muñoz
  • Juan Castañeda

Abstract

The severe financial crisis that grips Spain has multiple causes. One has been the massive and continued expansion of the money supply since Spain’s accession to the Eurozone, and the non-negligible effects of this expansion on asset prices as well as on the structure of the economy. We analyse the main hypotheses underlying the mainstream macroeconomic models used in recent years to explain inflation and its relation to money. We then apply an ‘unobserved component model’ to test for the cyclical relation between money growth, inflation, asset (stock and real estate) prices and real GDP in Spain from 1998 to 2013. Based on the Spanish experience, our main finding is that, even though the money supply has become endogenous within the monetary strategy developed by the US Federal Reserve and the European Central Bank in recent times, the broad money supply and asset prices have shared the same cyclical component in the latest business cycle (1998–2013).

Suggested Citation

  • José Luis Cendejas Bueno & Félix-Fernando Muñoz & Juan Castañeda, 2014. "When Money Matters," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 15(2), pages 77-110, April.
    • Handle: RePEc:wej:wldecn:586
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    Cited by:

    1. Cendejas Bueno, José Luis & Castañeda, Juan Enrique & Muñoz, Félix, 2015. "Business cycles and monetary regimes in the U.S. (1960 – 2014): A plea for monetary stability," Working Papers in Economic Theory 2015/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    2. Cendejas, José Luis & Castañeda, Juan E. & Muñoz, Félix-Fernando, 2014. "Business cycle, interest rate and money in the euro area: A common factor model," Economic Modelling, Elsevier, vol. 43(C), pages 136-141.

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