Institutional Affiliation: Federal Reserve Bank of San Francisco
|The Implications of an Endogenous Money Supply for Monetary Neutrality|
with : w1175
This paper examines the implications of an endogenous money supply for the perceived(by econometricians) and actual nonneutrality of money in rational expectations models of the class put forward by Lucas (1972, 1973) and Barro(1976, 1980) that stress incomplete information. First,if there is contemporaneous policy response (e.g., to interest rates),then a simultaneous equations bias produces inconsistency in tests that use contemporaneous monetary statistics such as those proposed by King (1981) and Boschen-Grossman (1983).Thus, an econometrician might erroneously conclude that money is nonneutral ina fully classical model. Second, if money acts as a 'signal' about economic conditions then autonomous (policy induced) changes in the money stock can have real effects. In contrast to the non...
Published: King, Robert G. and Bharat Trehan. "Money: Endogeneity and Neutrality." Journal of Monetary Economics, (November 1984).