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| Volume 4, No. 1,
April 2005
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Output Variability and the
Money-Output Relationship |
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Hany Guirguis |
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Department
of Economics and Finance, Manhattan College, U.S.A. |
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Martin B. Schmidt |
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Department
of Economics, College of William and Mary, U.S.A. |
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| Abstract |
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The present paper incorporates
a rolling regression approach to examine the sensitivity of output
responses to monetary shocks. In doing so, the paper finds that the
impact of monetary shocks is highly variable. Specifically, the
output responses are estimated to be significant during the 1970s
and 1990s but not during the 1980s. Several recent authors have
suggested that the effectiveness of monetary policy is impacted by
the stability of the economic environment, i.e., that the noise
associated with estimating the true output level makes it difficult
for the monetary authority to “hit its target” or even to estimate
the correct target. In this case, supposed optimal policy may
produce any number of possible output responses and none of these
consistently. The present results provide additional evidence, as
the magnitude of output response appears to be negatively related
with the degree of output variability. |
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Key words:
monetary
shocks; money-income relationship; rolling vector auto regression
(VAR) |
| JEL
classification:
E52; C32 |
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