Arbeitspapier
The Quantity Theory Revisited: A New Structural Approach
While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In this paper, we show that the development of US consumer price inflation between 1960Q1 and 2005Q4 is strongly driven by money overhang. To this end, we use a multivariate state space framework that substantially expands the traditional vector error correction approach. This approach allows us to estimate the persistent components of velocity and GDP. A sign restriction approach is subsequently used to identify the structural shocks to the signal equations of the state space model that explain money growth, inflation, and GDP growth. We also account for the possibility that measurement error exhibited by simple-sum monetary aggregates causes the consequences of monetary shocks to be improperly identified by using a Divisia monetary aggregate. Our findings suggest that when the money is measured using a reputable index number, the quantity theory holds for the United States.
- Sprache
-
Englisch
- Erschienen in
-
Series: IWH Discussion Papers ; No. 7/2011
Price Level; Inflation; Deflation
Monetary Policy
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
state space decomposition
sign restrictions
Divisia Geld
Zustandsraummodell
Vorzeichenrestriktionen
Giesen, Sebastian
Kelly, Logan J.
- Handle
- URN
-
urn:nbn:de:101:1-201106033396
- Letzte Aktualisierung
-
20.09.2024, 08:22 MESZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- el-Shagi, Makram
- Giesen, Sebastian
- Kelly, Logan J.
- Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
Entstanden
- 2011
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