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Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask This Question?

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  • Benjamin M. Friedman

Abstract

The predominant weight of the existing evidence suggests that the effects of monetary policy on real economic activity are systematic, significant, and sizeable. Yet questions remain, both about individual empirical results and, more broadly, about the different methodological approaches that researchers have used to investigate these effects. This paper addresses the conceptual issues that account for our continuing to ask whether monetary policy has real effects even though, at a certain level, we do 'know' the answer. The paper's overview of theory and evidence suggests that much of the explanation for the continuing tug-of- war between research findings and subsequent questions in this area lies in two sets of limitations, one reflecting how economics conceptualizes behavioral processes and one reflecting how economics draws inferences from observed data.

Suggested Citation

  • Benjamin M. Friedman, 1995. "Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask This Question?," NBER Working Papers 5212, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5212
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    Cited by:

    1. Stephen Grenville, 1996. "Recent Developments in Monetary Policy: Australia and Abroad," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(1), pages 29-39, January.
    2. Norrbin, Stefan, 2001. "What Have We Learned from Empirical Tests of the Monetary Transmission Effect," Working Paper Series 121, Sveriges Riksbank (Central Bank of Sweden).
    3. Javier Valles & Jose Vinals, 1999. "On the real effects of the monetary policy: A central banker's view," Working Papers 38, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
    5. Sun, Rongrong, 2013. "Does monetary policy matter in China? A narrative approach," China Economic Review, Elsevier, vol. 26(C), pages 56-74.
    6. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.
    7. BIKAI, J. Landry & KENKOUO, Guy Albert, 2015. "Analysis and evaluation of the Monetary Policy Transmission Channels in the CEMAC: A SVAR and SPVAR Approaches," MPRA Paper 78227, University Library of Munich, Germany.
    8. repec:onb:oenbwp:y::i:38:b:1 is not listed on IDEAS
    9. Benoît Mojon, 1997. "Looking for French Monetary Policy," Working Papers 1997-10, CEPII research center.
    10. Mr. Alexei P Kireyev, 2001. "Financial Reforms in Sudan: Streamlining Bank Intermediation," IMF Working Papers 2001/053, International Monetary Fund.
    11. Paul G. Egan & Anthony J. Leddin, 2016. "Examining Monetary Policy Transmission in the People's Republic of China–Structural Change Models with a Monetary Policy Index," Asian Development Review, MIT Press, vol. 33(1), pages 74-110, March.
    12. Höppner, Florian & Gottschalk, Jan, 2001. "Measuring the Effects of Monetary Policy in the Euro Area: The Role of Anticipated Policy," Kiel Working Papers 1074, Kiel Institute for the World Economy (IfW Kiel).
    13. Daniel McCoy, & McMahon, Michael, 2000. "Differences in the Transmission of Monetary Policy in the Euro-Area: An Empirical Approach," Research Technical Papers 5/RT/00, Central Bank of Ireland.
    14. Holtemöller, Oliver, 2002. "Money and banks: Some theory and empirical evidence for Germany," SFB 373 Discussion Papers 2002,17, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    15. Mamdouh Abdelmoula M. Abdelsalam, 2018. "Asymmetric Effect of Monetary Policy in Emerging Countries: The Case of Egypt," Applied Economics and Finance, Redfame publishing, vol. 5(4), pages 1-11, July.
    16. Nicola Acocella & Giovanni Di Bartolomeo, 2002. "Sindacati, non neutralitˆ della moneta e giochi di politica economica," Moneta e Credito, Economia civile, vol. 55(219), pages 263-277.

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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