Working Paper: NBER ID: w9390
Authors: Peter N. Ireland
Abstract: What explains the correlations between nominal and real variables in the postwar US data? Are these correlations indicative of significant nominal price rigidity? Or do they simply reflect the particular way that monetary policymakers react to developments in the real economy? To answer these questions, this paper uses maximum likelihood to estimate a model of endogenous money. This model allows, but does not require, nominal prices to be sticky. The results show that nominal price rigidity, over and above endogenous money, plays a role in accounting for key features of the data.
Keywords: No keywords provided
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nominal money stocks (E49) | Nominal interest rates (E43) |
| Nominal interest rates (E43) | Real economic activity (E39) |
| Nominal price inflation (E31) | Real economic activity (E39) |
| Nominal price rigidity (E31) | Real economic activity (E39) |
| Monetary policy actions (E52) | Real economic activity (E39) |
| Nominal prices (P22) | Real economic activity (E39) |
| Endogenous money (E51) | Real economic activity (E39) |
| Nominal price rigidity (E31) | Nominal money stocks (E49) |
| Taylor-type rule (C69) | Nominal price rigidity (E31) |