TY  - JOUR
AU  - Green,Steven L.
AU  - Grossman,Herschel I.
TI  - The Illusion of Stabilization Policy?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1889
PY  - 1986
Y2  - April 1986
UR  - http://www.nber.org/papers/w1889
L1  - http://www.nber.org/papers/w1889.pdf
N1  - Author contact info:
Steven L. Green
Department of Economics
Baylor University
P.O. Box 98003
Waco, TX   76798
Tel: 817/755-2263
E-Mail: Steve_Green@baylor.edu

Herschel Grossman
Department of Economics
Box B
Brown University
Providence, RI  02912
Tel: 401/863-2606
Fax: 401/863-1970
AB  - For the period 1959-1972 money growth in the United States was positively correlated with past inflation and negatively correlated with past unemployment, whereas for the period 1973-1984 this correlation pattern was reversed. International data, moreover, show that the eight largest western economies exhibit a wide variety of patterns for these correlations, and these patterns seem to be unrelated to average inflation. Theoretical analysis reveals that a model in which the monetary authority is concerned only with controlling inflation is consistent with any pattern of sample correlations of money growth with past inflation and past unemployment. This analysis suggests that international differences in these sample correlations result from differences in the sample variances of disturbances to productivity growth and to aggregate demand. Specifically, the analysis suggests that the critical difference between the pre-1973 and post-1973 periods for the United States was a decrease in the importance of transitory disturbances to aggregate demand relative to permanent disturbances to productivity growth. More generally, these results imply that we cannot readily infer the objectives of the monetary authority from observed patterns of monetary policy.
ER  -