On money and output: Is money redundant?

Hafer, R. W.; Haslag, Joseph H.; Jones, Garett

doi:10.1016/j.jmoneco.2005.06.004

Cited by 35 publications

(35 citation statements)

References 21 publications

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“…This is consistent with the ndings of Hafer et al (2007) and Leeper and Roush (2003) as models 2 and 4 contain aggregation theoretic measures of money and model 3 contains the inferior simple sum aggregate.…”

Section: Resultssupporting

confidence: 87%

“…I am not, at this point, concerned with testing various specications of the transmission mechanisms. Therefore, I choose to follow (Hafer et al, 2007) and estimate the following reduced form backward looking IS equation,…”

Section: Model Specicationsmentioning

confidence: 99%

“…They each show that under some sets of identifying assumptions money matters. Hafer, Haslag, and Jones (2007) answers the analysis of Rudebusch and Svensson by arguing that their nding that money growth is a statistically insignicant predictor of GDP gap when lags of GDP gap and real interest rates are included as explanatory variables is due to the use of simple sum monetary aggregates. In section 4, I will repeat Hafer et al (2007) analysis with various measures of money.…”

Section: Introductionmentioning

confidence: 96%

“…Hafer, Haslag, and Jones (2007) answers the analysis of Rudebusch and Svensson by arguing that their nding that money growth is a statistically insignicant predictor of GDP gap when lags of GDP gap and real interest rates are included as explanatory variables is due to the use of simple sum monetary aggregates. In section 4, I will repeat Hafer et al (2007) analysis with various measures of money. I nd that measures of money that are based on monetary aggregation theory are statistically signicant predictors of GDP gap even after accounting for real interest rates and lags of GDP gap, but simple sum measures of money are not signicant.…”

Section: Introductionmentioning

confidence: 96%

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The stock of money and why you should care

Kelly

2009

Advances in Econometrics

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In this paper, I will examine the problems created by incorrectly using a simple sum monetary aggregate to measure the monetary stock. Specically, I will show that simple sum monetary aggregate confounds the current stock of money with the investment stock of money and that this confounding leads the simple sum monetary aggregate to report an articially smooth monetary stock. This smoothing causes important information about the dynamic movements of the monetary stock to be lost. This may oer at least a partial explanation of why so many studies nd that money has little economic relevance. To that end, we will conclude the paper by examining a reduced form backward looking IS equation to determine whether monetary aggregates contain information about real GDP gap. This paper diers from previous work in that it focuses on smoothing of the monetary stock data caused by the use of simple sum methodology, where the previous work focuses on the bias exhibited by simple sum monetary aggregates.

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Section: Resultssupporting

confidence: 87%

Section: Model Specicationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 96%

See 2 more Smart Citations

The stock of money and why you should care

Kelly

2009

Advances in Econometrics

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“…Hafer et al (2007) find that money is not redundant, notably there is a significant statistical relationship between lagged values of money and the output gap, even when lagged values of real interest rates and lagged values of the output gap are accounted for. Hafer and Jones (2008), adding money to a dynamic IS model, discover that evidence from six countries indicates that money growth usually helps predict the GDP gap and that the predictive power of a short-term real interest rate is much weaker than previous work suggests.…”

Section: The Modelmentioning

confidence: 80%

The Design of a 'Two-Pillar' Monetary Policy Strategy

Dai

2009

SSRN Journal

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Abstract:In this paper, it is argued that money supply in a narrow sense and repo interest rate are two independent monetary policy instruments when the effect of interest rate policy cannot be efficiently transmitted to the economy through the monetary and financial markets. In this case, the control of money supply is necessary to reduce the discrepancy between the repo interest rate and the interest rates at which private agents lend and borrow. Using a simple macro-economic model, this study shows how a two-pillar monetary policy strategy as practiced by the European central bank (ECB) can be conceived to guarantee macroeconomic stability and the credibility of monetary policy. This strategy can be interpreted as a combination of inflation targeting and monetary targeting. Well conceived monetary targeting with a commitment to a long-run money growth rate corresponding to inflation target could reinforce the credibility of central bank announcements and the role of inflation target as strong and credible nominal anchor for private inflation expectations. However, an inflation-targeting regime associated with Friedman's money supply rule can generate dynamic instability in output, inflation and money demand. Three feedback monetary targeting rules, of which the design depends on economic structure and central bank preferences, are discussed relative to their capability of warranting macroeconomic stability.

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