Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz / Christina D. Romer, David H. Romer.

Format:

Book

Author/Creator:

Romer, Christina D.

Contributor:

National Bureau of Economic Research.

Romer, David H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2966.

NBER working paper series no. w2966

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

This paper uses the historical record to isolate episodes in which there were large monetary disturbances not caused by output fluctuations. It then tests whether these monetary changes have important real effects. The central part of the paper is a study of postwar U.S. monetary history. We identify six episodes in which the Federal Reserve in effect decided to attempt to create a recession to reduce inflation. We find that a shift to anti-inflationary policy led, on average, to a rise in the unemployment rate of two percentage points, and that this effect is highly statistically significant and robust to a variety of changes in specification. We reach three other major conclusions. First, the real effects of these monetary disturbances are highly persistent. Second, the six shocks that we identify account for a considerable fraction of postwar economic fluctuations. And third, evidence from the interwar era also suggests that monetary disturbances have large real effects.

Notes:

Print version record

May 1989.