Money, Prices, Interest Rates and the Business Cycle

Robert King () and Mark Watson

The Review of Economics and Statistics, 1996, vol. 78, issue 1, 35-53

Abstract: The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models--real business cycle model, a sticky price model and a liquidity effect model--account for these central facts. While the models have diverse successes and failures, none can account for the fact that real and nominal interest rates are 'inverted leading indicators' of real economic activity. That is, none of the models captures the post-war U.S. business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future. Copyright 1996 by MIT Press.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (263)

Downloads: (external link)
http://links.jstor.org/sici?sici=0034-6535%2819960 ... 0.CO%3B2-V&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Money, prices, interest rates and the business cycle (1995)
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:tpr:restat:v:78:y:1996:i:1:p:35-53

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().