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Putting 'M' back in Monetary Policy

  • Eric M. Leeper
  • Jennifer E. Roush

Money demand and the stock of money have all but disappeared from monetary policy analyses. This paper is an empirical contribution to the debate over the role of money in monetary policy analysis. The paper models supply and demand interactions in the money market and finds evidence of an essential role for money in the transmission of policy. Across sub-samples, it finds evidence consistent with the following inferences: (1) the money stock and the interest rate jointly transmit monetary policy; (2) for a given exogenous change in the nominal interest rate, the estimated impact of policy on economic activity increases monotonically with the response of the money supply; (3) the path of the real rate is not sufficient for determining policy impacts.

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File URL: http://www.nber.org/papers/w9552.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9552.

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Date of creation: Mar 2003
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Publication status: published as Leeper, Eric M. and Jennifer E. Roush. "Putting 'M' Back in Monetary Policy," Journal of Money, Credit and Banking 35(6): 1217-1256. Dec. 2003
Handle: RePEc:nbr:nberwo:9552
Note: EFG ME
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  1. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," FRB Atlanta Working Paper No. 95-6, Federal Reserve Bank of Atlanta.
  2. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  4. Christopher A. Sims, 1998. "Role of interest rate policy in the generation and propagation of business cycles: what has changed since the '30s?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 121-175.
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