The Implications of an Endogenous Money Supply for Monetary Neutrality / Robert G. King, Bharat Trehan.

Format:

Book

Author/Creator:

King, Robert G.

Contributor:

National Bureau of Economic Research.

Trehan, Bharat.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1175.

NBER working paper series no. w1175

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1983.

Summary:

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 nonneutrality of money in the Lucas-Barro analysis, which arises due to incomplete information about monetary aggregates, this nonneutrality requires that monetary information be utilized by economic agents.

Notes:

Print version record

August 1983.