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American Economic Review: Vol. 101 No. 1 (February 2011)

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Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals

Article Citation

Sargent, Thomas J., and Paolo Surico. 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals." American Economic Review, 101(1): 109-28.

DOI: 10.1257/aer.101.1.109

Abstract

By extending his data, we document the instability of low-frequency regression coefficients that Lucas (1980) used to express the quantity theory of money. We impute the differences in these regression coefficients to differences in monetary policies across periods. A DSGE model estimated over a subsample like Lucas's implies values of the regression coefficients that confirm Lucas's results for his sample period. But perturbing monetary policy rule parameters away from the values estimated over Lucas's subsample alters the regression coefficients in ways that reproduce their instability over our longer sample. (JEL C51, E23, E31, E43, E51, E52)

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Authors

Sargent, Thomas J. (NYU)
Surico, Paolo (London Business School)

JEL Classifications

C51: Model Construction and Estimation
E23: Macroeconomics: Production
E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E51: Money Supply; Credit; Money Multipliers
E52: Monetary Policy


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