Output, Money, and Interest Rates in Macroeconomic Fluctuations

George Vamvoukas (gvamv@aueb.gr)
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George Vamvoukas: Athens University of Economics and Business, Postal: 76 Patission Street, Athens, 104 34, Greece, http://www.stat-athens.aueb.gr/

Economia Internazionale / International Economics, 2002, vol. 55, issue 3, 399-414

Abstract: Using a developing economy framework and within the empirical context of the SVAR (Structural Vector Autoregression) methodology, the paper examines the interaction between money, output and interest rates and sheds light on some fundamental propositions of the business cycle. The empirical analysis contradicts the MBC (Monetary Business Cycle) proposition that money innovations play a major role in explaining output movements. On the other hand, the results do not give output innovations any role in affecting money, so that both the Keynesian and the RBC (Real Business Cycle) views appear to be invalid. In terms of VDCs and IRFs, the findings strongly support Sims’ argument that policy innovations are transmitted to the economy through interest rates and that interest rate shocks cause fluctuations in money and output.

JEL-codes: E32 E41 E52 (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0185

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