Working Paper: NBER ID: w21796
Authors: Michael T. Belongia; Peter N. Ireland
Abstract: More than fifty years ago, Friedman and Schwartz examined historical data for the United States and found evidence of pro-cyclical movements in the money stock, which led corresponding movements in output. We find similar correlations in more recent data; these appear most clearly when Divisia monetary aggregates are used in place of the Federal Reserve’s official, simple-sum measures. When we use information in Divisia money to estimate a structural vector autoregression, identified monetary policy shocks appear to have large and persistent effects on output and prices, with a lag that has lengthened considerably since the early 1980s.
Keywords: money supply; output fluctuations; monetary policy; divisia aggregates
JEL Codes: E31; E32; E51; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy shocks (E39) | output (C67) |
| money supply (E51) | output (C67) |
| money supply (E51) | prices (P22) |
| money stock movements (E51) | output (C67) |
| variations in the money supply (E51) | real GDP (E20) |