Reconsidering the role of money for output, prices and interest rates

Giovanni Favara and Paolo Giordani ()

Journal of Monetary Economics, 2009, vol. 56, issue 3, 419-430

Abstract: New Keynesian models of monetary policy downplay the role of monetary aggregates, in the sense that the level of output, prices, and interest rates can be determined without knowledge of the quantity of money. This paper evaluates the empirical validity of this prediction by studying the effects of shocks to monetary aggregates using a vector autoregression (VAR). Shocks to monetary aggregates are identified by the restrictions suggested by New Keynesian monetary models. Contrary to the theoretical predictions, shocks to broad monetary aggregates have substantial and persistent effects on output, prices and interest rates.

Keywords: New; Keynesian; models; LM; shocks; VAR; Block-exogeneity (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (81)

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Working Paper: Reconsidering the Role of Money for Output, Prices and Interest Rates (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:3:p:419-430

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