Money and output asymmetry: The Unintended consequences of central banks' obsession with inflation

Taniya Ghosh and Abhishek Gorsi ()
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Abhishek Gorsi: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: The study reexamines the relationship between money and output for the US, UK, and the Euro Area using quarterly data up to 2022. Modern central banks are focused on controlling inflation, and adjust their monetary policy and liquidity accordingly. However, it is common practise to overlook the precise effects of those actions on other variables. Unlike prior research, which has mainly focused on the linear relationship, this paper examines the asymmetric impact of money on output. The results show that a decrease in the amount of money has a much more adverse impact on output than an increase. Globally, during COVID-19, there was an infusion of liquidity that might have been useful in the short term, but the withdrawal of that excess liquidity, as been done currently by some major economies, may have long-term effects on those economies' output.

Keywords: Monetarism; Monetary Aggregates; Monetary Policy; Money; Money-Income-Output; NARDL; Non-Linear Granger Causality (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 E64 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2023-07

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