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Money and Business Cycles: A Real Business Cycle Interpretation

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  • Charles I. Plosser

Abstract

This paper focuses on the role of money in economic fluctuations. While money may play an important role in market economies, its role as an important impulse to business cycles remains a highly controversial hypothesis. For years economists have attempted to construct monetary theories of the business cycle with only limited empirical success. Alternatively, recent real theories of the cycle have taken the view that to a first approximation independent variations in the nominal quantity of outside money are neutral. This paper finds that the empirical evidence for a monetary theory of the cycle is weak. Not only do variations in nominal money explain very little of subsequent movements in real activity, but what explanatory power exists arises from variations in endogenous components of money.

Suggested Citation

  • Charles I. Plosser, 1990. "Money and Business Cycles: A Real Business Cycle Interpretation," NBER Working Papers 3221, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3221 Note: ME
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    Cited by:

    1. Kenneth D. West, 1993. "An Aggregate Demand--Aggregate Supply Analysis of Japanese Monetary Policy,1973-1990," NBER Chapters,in: Japanese Monetary Policy, pages 160-188 National Bureau of Economic Research, Inc.
    2. Haslag, Joseph H. & Hein, Scott E., 1995. "Does it matter how monetary policy is implemented?," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 359-386, April.
    3. Prakash Loungani & Mark Rush, 1994. "The effect of changes in reserve requirements on investment and GNP," International Finance Discussion Papers 471, Board of Governors of the Federal Reserve System (U.S.).
    4. 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.
    5. Jinill Kim, 1998. "Monetary policy in a stochastic equilibrium model with real and nominal rigidities," Finance and Economics Discussion Series 1998-02, Board of Governors of the Federal Reserve System (U.S.).
    6. Joseph H. Haslag & Scott E. Hein, 1995. "Measuring the policy effects of changes in reserve requirement ratios," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 2-15.
    7. Michael T. Belongia & Peter N. Ireland, 2002. "The Own-Price of Money and a New Channel of Monetary Transmission," Boston College Working Papers in Economics 544, Boston College Department of Economics.
    8. S. Rao Aiyagari, 1990. "Deflating the case for zero inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
    9. Michelle R. Garfinkel & Daniel L. Thornton, 1991. "The multiplier approach to the money supply process: a precautionary note," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 47-64.
    10. Luis Eduardo Arango Thomas, 1998. "Some univariate time series properties of output," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, pages 7-46.
    11. Luis Eduardo Arango Thomas, 1998. "Some univariate time series properties of output," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, pages 7-46.
    12. Ramey, Valerie A., 1992. "The source of fluctuations in money : Evidence from trade credit," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 171-193, November.
    13. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, pages 553-577.

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