Hostname: page-component-586b7cd67f-r5fsc Total loading time: 0 Render date: 2024-11-24T16:08:44.544Z Has data issue: false hasContentIssue false
  • English
  • Français

On the Role of Monetary Factors in Business Cycle Models

Published online by Cambridge University Press:  17 August 2016

Fabio-Cesare Bagliano  and
Giancarlo Marini
Fabio-Cesare Bagliano
Affiliation:
London School of Economics
Giancarlo Marini
Affiliation:
University of Siena
Get access

Summary

Granger-causality tests and innovation analyses based on Vector Autoregression models seem to deny any role for monetary factors in generating and shaping business cycle fluctuations. The present paper shows that such empirical support for Real Business Cycle theories is flawed. In particular, it is demonstrated that an extended version of the Lucas paradigm can explain the existing evidence rather accurately, when changes in policy regimes are explicitly modelled.

Résumé

Résumé

Les tests de causalité de Granger et les analyses d’innovation basées sur des modèles autoregressifs semblent nier tout rôle aux facteurs monétaires dans la genèse et la forme des variations cycliques. Notre article montre que ces méthodes empiriques ne confirment pas les théories de “Real Business Cycles”. En particulier, nous démontrons qu’une version large du paradigme de Lucas explique les faits de manière assez précise lorsque les changements de régimes sont explicite¬ment modélisés.

Keywords

023131311023131311
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 57 , Issue 1 , 1991 , pp. 3 - 19
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1991 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We would like to thank, without implicating, Charlie Bean (LSE) and two anonymous referees for helpful comments and suggestions, and the C.N.R. (Consiglio Nazionale delle Ricerche) for financial support.

References

Bean, Ch.R. (1984), A Little Bit More Evidence on the Natural Rate Hypothesis from the U.K., European Economic Review, August, pp. 279–292.Google Scholar
Blinder, A.S. and Fischer, S. (1981), Inventories, Rational Expectations and the Business Cycle, Journal of Monetary Economics, November, pp. 277–304.Google Scholar
Butter, W.H. (1982), Predetermined and Non-Predetermined Variables in Rational Expectations Models, Economics Letters, n° 1-2, pp. 49–54.Google Scholar
Butter, W.H. (1984), Granger-causality and Policy Effectiveness, Economica, May, pp. 151–162.Google Scholar
Bull, C. and Frydman, R. (1983), The Derivation and Interpretation of the Lucas Supply Function, Journal of Money, Credit and Banking, February, pp. 81–95.Google Scholar
Cooley, T.F. and LeROY, S.F. (1985), A theoretical Macroeconometrics : a Critique, Journal of Monetary Economics, n ° 15, pp. 283–308.Google Scholar
Eichenbaum, M. and Singleton, K. (1986), Do Equilibrium Real Business Cycle Theories Explain Postwar U.S. Business Cycles?, in: Fischer, S. (ed.), NBER Macroeconomics Annual 1986, Mit Press, pp. 91–135.Google Scholar
Fama, E.F. (1980), Banking in the Theory of Finance, Journal of Monetary Economics, January, pp. 39–57.Google Scholar
Fischer, S. (1983), A Framework for Monetary and Banking Analysis, Economic Journal, Conference Supplement, pp. 1–16.Google Scholar
Friedman, M. (1968), The Role of Monetary Policy, American Economic Review, March, pp. 1–17.Google Scholar
Froyen, R.T. and Waud, R.N. (1988), Real Business Cycles and the Lucas Paradigm, Economic Inquiry, April, pp. 183–201.Google Scholar
King, R.G. (1986), Money and Business Cycles: Comments on Bernanke and Related Literature, Carnegie-Rochester Conference Series on Public Policy, vol. 25, pp. 101–116.Google Scholar
King, R.G. and Plosser, Ch. (1984), Money, Credit and Prices in a Real Business Cycle Model, American Economic Review, June, pp.363–380.Google Scholar
King, R.G. and Trehan, B. (1984), Money. Endogeneity and Neutrality, Journal of Monetary Economics, n° 14, pp. 385–393.Google Scholar
Kydland, F. and Prescott, E. (1982), Time to Build and Aggregate Fluctuations, Econometrica, November, pp. 1345–1370.Google Scholar
Leamer, E. E. (1985), Vector Autoregressions for Causal Inference?, Carnegie-Rochester Conference Series on Public Policy, vol. 22, pp. 255–304.Google Scholar
Long, J.B. and Plosser, Ch. (1983), Real Business Cycles, Journal of Political Economy, February, pp. 39–69.Google Scholar
Lucas, R.E. (1973), Some International Evidence on Output-Inflation Tradeoffs, American Economic Review, June, pp. 326–334.Google Scholar
Lucas, R.E. (1980), Equilibrium in a Pure Currency Economy, Economic Inquiry, pp. 203–220.Google Scholar
Lucas, R.E. and Stokey, N. (1983), Optimal Fiscal and Monetary Policy in an Economy Without Capital, Journal of Monetary Economics, pp. 55–93.Google Scholar
Marini, G. (1988), Policy Effectiveness and Design in New Classical Models, Oxford Economic Papers, December, 646–654.Google Scholar
Mccallum, B.T. (1983), On Non-Uniqueness in: Rational Expectations Models, Journal of Monetary Economics, pp. 139–168.Google Scholar
Mccallum, B.T. (1986), On Real and Sticky-Price Theories of the Business Cycle, Journal of Money, Credit and Banking, November, pp. 397–414.Google Scholar
Mccallum, B.T. (1989), Real Business Cycle Models, in: Barro, R. (ed.), Handbook of Modern Business Cycle Theory, Basil Blackwell.Google Scholar
Neftci, S.N. and Sargent, T. (1978), A Little Bit of Evidence on the Natural Rate Hypothesis from the U.S., Journal of Monetary Economics, pp. 315–320.Google Scholar
Pagan, A. (1987), Three Econometric Methodologies: a Critical Appraisal, Journal of Economic Surveys, vol. 1, n° 1.Google Scholar
Prescott, E.C. (1986), Theory Ahead of Business Cycle Measurement, Federal Reserve Bank of Minneapolis Quarterly Review, Fall, pp. 9–22.Google Scholar
Sargent, T. (1976), A Classical Macroeconometric Model for the United States, Journal of Political Economy, April, pp. 207–237.Google Scholar
Sargent, T. (1979), Macroeconomic Theory, New York, Academic Press.Google Scholar
Siegel, J. J.. (1985), Money Supply Announcements and Interest Rates. Does Monetary Policy Matter?, Journal of Monetary Economics, March, pp. 163–176.Google Scholar
Sims, C. A. (1980), Macroeconomics and Reality, Econometrica, January, pp. 1–48.Google Scholar
Sims, C. A. (1980), Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered, American Economic Review, Papers and Proceedings, May, pp. 250–257.Google Scholar
Sims, C. A. (1982), Policy Analysis with Econometric Models, Brookings Papers on Economic Activity, n° 1, pp. 107–164.Google Scholar