Does money matter in the IS curve? The case of the UK

Barry Edward Jones () and Livio Stracca ()
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Livio Stracca: Counsel to the Executive Board, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 904, Working Paper Series from European Central Bank

Abstract: Narrow and broad money measures (including Divisia aggregates) have been found to have explanatory power for UK output in backward-looking specifications of the IS curve. In this paper, we explore whether or not real balances enter into a forward-looking IS curve for the UK, building on the theoretical framework of Ireland (2004). To do this, we test for additive separability between consumption and money over a sizeable part of the post-ERM period using non-parametric methods. If consumption and money are not additively separable, then real money balances enter into the forward-looking IS curve (the converse does not hold, however). A main finding is that the UK data seem to be broadly consistent with additive separability for the the more recent period from 1999 to 2007. JEL Classification: C14, C43, C63, E21, E41.

Keywords: Additive Separability; IS Curve; Non-Parametric Tests; Measurement Error; Divisia Monetary Aggregates. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: Written 2008-06

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Related works:
Journal Article: DOES MONEY MATTER IN THE IS CURVE? THE CASE OF THE UK (2008)
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