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Output Fluctuations and Monetary Shocks: Evidence from Colombia

  • Reinhart, Carmen
  • Reinhart, Vincent

Using annual data for Colombia over the last 30 years, we test competing theories that explain macroeconomic fluctuations: the neoclassical synthesis, which posits that in the presence of temporary price rigidity, an unanticipated monetary expansion produces output gains that erode over time with increases in the price level; and an alternative explanation, which focuses on "real" technological or preference shocks as sources of output changes. Coefficients from this system are used to examine the long-run neutrality of nominal quantities with respect to permanent movements in the money stock and the short-run sensitivity of output to inflation.

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File URL: https://mpra.ub.uni-muenchen.de/6980/1/MPRA_paper_6980.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6980.

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Date of creation: Dec 1991
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Publication status: Published in IMF Staff Papers 4.38(1991): pp. 705-735
Handle: RePEc:pra:mprapa:6980
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Web page: https://mpra.ub.uni-muenchen.de

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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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  3. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
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  7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  8. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  9. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
  10. Leiderman, Leonardo, 1984. "On the monetary-macro dynamics of Colombia and Mexico," Journal of Development Economics, Elsevier, vol. 14(1), pages 183-201.
  11. Plosser, C.I., 1989. "Understanding Real Business Cycles," Papers 89-03, Rochester, Business - General.
  12. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
  13. Ohanian, Lee E., 1988. "The spurious effects of unit roots on vector autoregressions : A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 39(3), pages 251-266, November.
  14. David H. Small & Richard D. Porter, 1989. "Understanding the behavior of M2 and V2," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 244-254.
  15. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  16. Mussa, Michael, 1981. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review, American Economic Association, vol. 71(5), pages 1020-27, December.
  17. Jere R. Behrman & James Hanson, 1979. "Short-Term Macroeconomic Policy in Latin America," NBER Books, National Bureau of Economic Research, Inc, number behr79-1, October.
  18. Sergio Clavijo Vergara & Hernando Jose Gomez Restrepo, 1988. "Seleccion Y Control De Agregados Monetarios Optimos," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  19. Mohsin S. Khan, 1980. "Monetary Shocks and the Dynamics of Inflation (Les chocs monétaires et la dynamique de l'inflation) (Los "choques" monetarios y la dinámica de la inflación)," IMF Staff Papers, Palgrave Macmillan, vol. 27(2), pages 250-284, June.
  20. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  21. Edwards, Sebastian, 1984. "Coffee, money and inflation in Colombia," World Development, Elsevier, vol. 12(11-12), pages 1107-1117.
  22. Bhargava, Alok, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 369-84, July.
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