and Paolo Giordani
Giovanni Favara: International Institute for Economic Studies, Stockholm University
Paolo Giordani: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Abstract: New Keynesian models of monetary policy assign no role to monetary aggregates, in the sense that the level of output, prices, and interest rates can be determined without knowledge of the quantity of money. We evaluate the empirical validity of this prediction by studying the effects of shocks to monetary aggregates using an identified VAR. Shocks to monetary aggregates are isolated by means of identifying restrictions suggested by this class of models. Contrary to the theoretical predictions, shocks to broad monetary aggregates have substantial and persistent effects on output and prices.
33 pages, November 19, 2002
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