Money and Business Cycles: A Real Business Cycle Interpretation

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This paper focuses on the role of money in economic fluctuations. While money may play an important role in market economies, its role as an important impulse to business cycles remains a highly controversial hypothesis. For years economists have attempted to construct monetary theories of the business cycle with only limited empirical success. Alternatively, recent real theories of the cycle have taken the view that to a first approximation independent variations in the nominal quantity of outside money are neutral. This paper finds that the empirical evidence for a monetary theory of the cycle is weak. Not only do variations in nominal money explain very little of subsequent movements in real activity, but what explanatory power exists arises from variations in endogenous components of money.

Published:

• Charles I. Plosser, 1989. "Money and business cycles: a real business cycle interpretation," Proceedings, Federal Reserve Bank of St. Louis. ,
• "Money and Business Cycles: A Real Business Interpretation." From Monetary Policy on the 75th Anniversary of the Federal Reserve System, edited by Michael T. Belongia, pp. 245-274. Norwell, MA: Kluwer Academic Publishers, 1990.

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