Doctoral Dissertations
Date of Award
8-2000
Degree Type
Dissertation
Degree Name
Doctor of Philosophy
Major
Economics
Major Professor
Jean Gauger
Abstract
This dissertation investigates the nature of the short run relationships between key monetary vanables and output. The question ofwhether or not money and monetary policy have significant short run effects on output represents the bone of contention in the long lasting debates between the competing schools of macroeconomic thought. The empirical studies aimed to assess the relevance of the competing of the ones provide contradictory evidence. It is argued in this dissertation that the majonty of these studies fail to address properly a number of methodological issues required by the particularities of the relationships investigated. These include the analytical distinctions outside money vs inside money and monetary policy vs. changes in the money stock. Well documented in monetary theory, these distinctions are commonly neglected in the empirical literature. In addition, many studies use econometric procedures that are not properly suited to investigate the short run monetary and macroeconomic dynamics. The research here fills these gaps in the empincal literature. To assess the nature of the interactions between the monetary vanables and output, this study explicitly distinguishes between outside money and inside money and between money stock fluctuations and monetary policy actions. The econometnc methodology employed here allows proper identification and analysis of the shortrun macroeconomic dynamics, which are the cntical issue generating theoretical controversies. Given a more complete coverage than common mthe existing literature, the results here provide more reliable evidence on monetary impacts in the economy. In addition, a new theoretical interpretation of the observed pattern of monetary and output dynamics is proposed and empincally tested in this study.
Parts Two through Four of this dissertation focus in turn on particular dimensions of the relationships between the monetary and the real sector. In each part,the interactions between the key monetary vanables and output are assessed by means of impulse response functions and forecast error variance decompositions, derived from structural vector error-correction models. Additional information is provided by Granger-causality and superexogemty tests.
Part Two focuses on the short run relationship between money and output. The money stock is decomposed into outside money, created by the monetary authenties, and inside money (measured as the money multiplier), created by the fractional banking system. Here, the main purpose is to evaluate the direction and the relative magnitude of mutual impacts among the two components of the money stock and output
Part Three switches the focus on the relationship between monetary policy and output. Intentional monetary policy actions are identified as the proportion of non-borrowed reserves in total reserves of the banking system. The investigation aims to assess the effectiveness of policy actions for output stabilization.
In Part Four atheoretical hypothesis is formulated and subjected to empirical testing. This hypothesis assigns portfolio redistributions among monetary assets an important role in explaining the observed pattern of monetary and output dynamics. The empirical evidence on the interactions between outside money, the money multiplier, and output is reexamined in this enriched analytical framework
The general conclusions of this study are that monetary policy actions are likely to be ineffective for output stabilization, and that the interactions between the key monetary vanables and output are weak. The analytical and econometric methodology used in this dissertation, its new empirical findings, and the theoretical hypothesis proposed here represent significant contributions to the monetary and macroeconomic literature.
Recommended Citation
Botel, Cezar, "Outside money, inside money, and monetary policy : new evidence on the interactions between key monetary variables and output. " PhD diss., University of Tennessee, 2000.
https://trace.tennessee.edu/utk_graddiss/8230