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Endogenous Money or Sticky Prices?

Author

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  • Peter N. Ireland

    (Boston College)

Abstract

What explains the correlations between nominal and real variables in the postwar US data? Are these correlations indicative of significant nominal price rigidity? Or do they simply reflect the particular way that monetary policymakers react to developments in the real economy? To answer these questions, this paper uses maximum likelihood to estimate a model of endogenous money. This model allows, but does not require, nominal prices to be sticky. The results show that nominal price rigidity, over and above endogenous money, plays an important role in accounting for key features of the data.

Suggested Citation

  • Peter N. Ireland, 2001. "Endogenous Money or Sticky Prices?," Boston College Working Papers in Economics 499, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:499
    Note: This paper has also been published as NBER WP 9390.
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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