Working Paper: NBER ID: w2364
Authors: Kenneth D. West
Abstract: It is shown that GNP will have an autoregressive root very close to unity in a variant of Taylor's (1980a,b) overlapping wage contracts model, for stylized versions of simple money supply rules and plausible values for the model's parameters. In this variant, monetary policy is the only reason for serial correlation in GNP. It is premature, therefore, to conclude, as some authors, have, that the presence of such a root in U.S. GNP is inconsistent with either a stationary natural rate or with nominal shocks playing a major role in the business cycle.
Keywords: GNP; monetary policy; business cycles; natural rate
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (E52) | GNP (E10) |
| Monetary policy (E52) | Money supply (E51) |
| Money supply (E51) | GNP (E10) |
| Serial correlation in money stock (E49) | Serial correlation in prices (E39) |
| Serial correlation in prices (E39) | GNP (E10) |
| Monetary policy (E52) | Serial correlation in GNP (C29) |