TY  - JOUR
AU  - King,Robert G.
AU  - Trehan,Bharat
TI  - The Implications of an Endogenous Money Supply for Monetary Neutrality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1175
PY  - 1983
Y2  - August 1983
UR  - http://www.nber.org/papers/w1175
L1  - http://www.nber.org/papers/w1175.pdf
N1  - Author contact info:
Robert King
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-5941
E-Mail: rking@bu.edu

Bharat Trehan
Federal Reserve Bank of San Francisco
E-Mail: bharat.trehan@sf.frb.org
AB  - This paper examines the implications of an endogenous money supply for the perceived(by econometricians) and actual nonneutrality of money in rational expectations models of the class put forward by Lucas (1972, 1973) and Barro(1976, 1980) that stress incomplete information. First,if there is contemporaneous policy response (e.g., to interest rates),then a simultaneous equations bias produces inconsistency in tests that use contemporaneous monetary statistics such as those proposed by King (1981) and Boschen-Grossman (1983).Thus, an econometrician might erroneously conclude that money is nonneutral ina fully classical model. Second, if money acts as a 'signal' about economic conditions then autonomous (policy induced) changes in the money stock can have real effects. In contrast to the nonneutrality of money in the Lucas-Barro analysis, which arises due to incomplete information about monetary aggregates, this nonneutrality requires that monetary information be utilized by economic agents.
ER  -