Interest Rates and Money in the Measurement of Monetary Policy

Michael Belongia and Peter Ireland

Journal of Business & Economic Statistics, 2015, vol. 33, issue 2, 255-269

Abstract: Over the last 25 years, a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies. In light of this work, the Federal Reserve's recent policy of "quantitative easing," with its goal of affecting the supply of liquid assets, appears to be a radical break from standard practice. Alternatively, one could posit that the monetary aggregates, when measured properly, never lost their ability to explain aggregate fluctuations and, for this reason, represent an important omission from standard models and policy discussions. In this context, the new policy initiatives can be characterized simply as conventional attempts to increase money growth. This view is supported by evidence that superlative (Divisia) measures of money often help in forecasting movements in key macroeconomic variables. Moreover, the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary policy shocks. These results cast doubt on the adequacy of conventional models that focus on interest rates alone. They also highlight that all monetary disturbances have an important "quantitative" component, which is captured by movements in a properly measured monetary aggregate.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (95)

Downloads: (external link)
http://hdl.handle.net/10.1080/07350015.2014.946132 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Interest Rates and Money in the Measurement of Monetary Policy (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:33:y:2015:i:2:p:255-269

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/UBES20

DOI: 10.1080/07350015.2014.946132

Access Statistics for this article

Journal of Business & Economic Statistics is currently edited by Eric Sampson, Rong Chen and Shakeeb Khan

More articles in Journal of Business & Economic Statistics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().