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US Domestic Money, Output, Inflation and Unemployment

Kwabena Ackon

MPRA Paper from University Library of Munich, Germany

Abstract: The relationship between money and macroeconomic variables such as output, inflation and unemployment is the basis of macroeconomic policy piquing the interests of both academic economists and policy makers especially in the aftermath of the Great Recession. With the Federal Reserve expanding its balance sheet by an estimated $4 trillion, the current economic debate is whether there is a stable relationship between money and macroeconomic variables. In fact, previous research had shown that the link is tenuous and a more recent paper by Aksoy and Piskorski (2006) had concluded that accounting for the foreign holdings of US dollars holds predictive content for the path key macroeconomic variables such as output and inflation. This paper aimed to test this theory on a larger dataset including testing a small sample for the period after the Great Recession. I found that accounting for foreign holdings of US dollars improved the intrinsic information held in domestic money for the path of output after the great recession and the path of inflation between 1965-2007.

Keywords: US Domestic Money; Central Bank; Output; Inflation; Interest Rate; Econometrics; Employment. (search for similar items in EconPapers)
JEL-codes: E3 E37 E4 E41 E42 E43 E44 E5 E51 E52 E58 (search for similar items in EconPapers)
Date: 2015-11-27
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