Working Paper: NBER ID: w9552
Authors: Eric M. Leeper; Jennifer E. Roush
Abstract: Money demand and the stock of money have all but disappeared from monetary policy analyses. This paper is an empirical contribution to the debate over the role of money in monetary policy analysis. The paper models supply and demand interactions in the money market and finds evidence of an essential role for money in the transmission of policy. Across sub-samples, it finds evidence consistent with the following inferences: (1) the money stock and the interest rate jointly transmit monetary policy; (2) for a given exogenous change in the nominal interest rate, the estimated impact of policy on economic activity increases monotonically with the response of the money supply; (3) the path of the real rate is not sufficient for determining policy impacts.
Keywords: No keywords provided
JEL Codes: E410; E430; E520
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money supply (E51) | interest rate (E43) |
| interest rate (E43) | economic activity (E20) |
| money supply (E51) | economic activity (E20) |
| interest rate and money supply (E51) | economic activity (E20) |
| policy shocks (E60) | economic activity (E20) |
| policy shocks (E60) | inflation (E31) |