Working Paper: NBER ID: w0558
Authors: John F. Boschen; Herschel I. Grossman
Abstract: This paper uses contemporaneous monetary data to carry out econometric tests of the "equilibrium" approach to modeling the relation between monetary disturbances and macroeconomic fluctuations. The theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data. The econometric analysis tests two hypotheses derived from this extended model. One hypothesis concerns the neutrality of perceived monetary policy. The other hypothesis concerns the nonneutrality of errors in preliminary monetary data. The econometric results imply rejection of both of these hypotheses. These tests provide strong evidence against the reality of the equilibrium approach.
Keywords: equilibrium macroeconomics; monetary policy; macroeconomic fluctuations
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| perceived monetary policy is neutral (E49) | innovation in aggregate output and employment (O49) |
| innovation in aggregate output and employment (O49) | perceived monetary policy is neutral (E49) |
| innovation in aggregate output (O49) | errors in preliminary monetary data are nonneutral (E39) |
| errors in preliminary monetary data do not significantly affect aggregate output (E39) | innovations in aggregate output are positively correlated with revisions in current measures of money growth (O42) |