Working Paper: NBER ID: w1932
Authors: Martin Eichenbaum; Kenneth J. Singleton
Abstract: This paper presents and interprets some new evidence on the validity of the Real Business Cycle approach to business cycle analysis. The analysis is conducted in the context of a monetary business cycle model which makes explicit one potential link between monetary policy and real allocations. This model is used to interpret Granger causal relations between nominal and real aggregates. Perhaps the most striking empirical finding is that money growth does not Granger cause output growth in the context of several multivariate VARs and for various sample periods during the post war period in the U.S. Several possible reconciliations of this finding with both real and monetary business cycles models are discussed. We find that it is difficult to reconcile our empirical results with the view that exogenous monetary shocks were an important independent source of variation in output growth.
Keywords: Real Business Cycle; Monetary Policy; Granger Causality
JEL Codes: E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Exogenous Monetary Shocks (E19) | Output Growth (O40) |
| Real Shocks (Y30) | Output Growth (O40) |
| Money Growth (O42) | Output Growth (O40) |
| Money Growth (O42) | Output Growth (O40) |