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Money and Output: Friedman and Schwartz Revisited

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  • Michael T. Belongia
  • Peter N. Ireland

Abstract

More than fifty years ago, Friedman and Schwartz examined historical data for the United States and found evidence of pro-cyclical movements in the money stock, which led corresponding movements in output. We find similar correlations in more recent data; these appear most clearly when Divisia monetary aggregates are used in place of the Federal Reserve’s official, simple-sum measures. When we use information in Divisia money to estimate a structural vector autoregression, identified monetary policy shocks appear to have large and persistent effects on output and prices, with a lag that has lengthened considerably since the early 1980s.

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  • Michael T. Belongia & Peter N. Ireland, 2015. "Money and Output: Friedman and Schwartz Revisited," NBER Working Papers 21796, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21796
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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
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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