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US Domestic Money, Output, Inflation and Unemployment

Author

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  • Ackon, Kwabena Meneabe

Abstract

The relationship between money and macroeconomic variables such as output, inflation and unemployment is the basis of macroeconomic policy piquing the interests of both academic economists and policy makers especially in the aftermath of the Great Recession. With the Federal Reserve expanding its balance sheet by an estimated $4 trillion, the current economic debate is whether there is a stable relationship between money and macroeconomic variables. In fact, previous research had shown that the link is tenuous and a more recent paper by Aksoy and Piskorski (2006) had concluded that accounting for the foreign holdings of US dollars holds predictive content for the path key macroeconomic variables such as output and inflation. This paper aimed to test this theory on a larger dataset including testing a small sample for the period after the Great Recession. I found that accounting for foreign holdings of US dollars improved the intrinsic information held in domestic money for the path of output after the great recession and the path of inflation between 1965-2007.

Suggested Citation

  • Ackon, Kwabena Meneabe, 2015. "US Domestic Money, Output, Inflation and Unemployment," MPRA Paper 100740, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100740
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    References listed on IDEAS

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    1. Aksoy, Yunus & Piskorski, Tomasz, 2006. "U.S. domestic money, inflation and output," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 183-197, March.
    2. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
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    8. Ruth A. Judson & Richard D. Porter, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 82(Oct), pages 883-903, October.
    9. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-492, June.
    10. Aksoy, Yunus & Piskorski, Tomasz, 2005. "US domestic currency in forecast error variance decompositions of inflation and output," Economics Letters, Elsevier, vol. 86(2), pages 265-271, February.
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    2. Ackon, Kwabena Meneabe, 2018. "Essays In Fiscal Policy And State Dependence Fiscal Policy Innovations Using A New Econometric Approach," MPRA Paper 100739, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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