Money and Output: Friedman and Schwartz Revisited
More than fifty years ago, Friedman and Schwartz examined historical data for the United States and found evidence of pro-cyclical movements in the money stock, which led corresponding movements in output. We find similar correlations in more recent data; these appear most clearly when Divisia monetary aggregates are used in place of the Federal Reserve’s official, simple-sum measures. When we use information in Divisia money to estimate a structural vector autoregression, identified monetary policy shocks appear to have large and persistent effects on output and prices, with a lag that has lengthened considerably since the early 1980s.
The authors would like to thank William Barnett, Lars Christensen, Josh Hendrickson, Bob Hetzel, David Laidler, Ken West, and two anonymous referees for extremely helpful comments on earlier drafts of this paper. Neither author received any external support for, or has any financial interest that relates to, the research described in this paper. The opinions, findings, conclusions, and recommendations expressed herein are their own and do not reflect those of the National Bureau of Economic Research.
MICHAEL T. BELONGIA & PETER N. IRELAND, 2016. "Money and Output: Friedman and Schwartz Revisited," Journal of Money, Credit and Banking, vol 48(6), pages 1223-1266. citation courtesy of