Real business cycle theory and monetary policy: the multiplier approach

David Smant ()

Applied Economics, 1998, vol. 30, issue 8, 1037-1053

Abstract: According to real business cycle theory the money multiplier explains money-output correlations because nominal policy is impotent. This paper re-examines the key assumptions of the multiplier approach and presents empirical evidence for five countries. The main conclusions are as follows. First, base money does Granger-cause economic activity. Second, actual operating procedures of monetary authorities prevent orthogonalization of base money and multiplier changes. The distinction between real and nominal aspects of monetary policy is therefore not very helpful.

Date: 1998
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DOI: 10.1080/000368498325219

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