Putting 'M' back in Monetary Policy
Money demand and the stock of money have all but disappeared from monetary policy analyses. This paper is an empirical contribution to the debate over the role of money in monetary policy analysis. The paper models supply and demand interactions in the money market and finds evidence of an essential role for money in the transmission of policy. Across sub-samples, it finds evidence consistent with the following inferences: (1) the money stock and the interest rate jointly transmit monetary policy; (2) for a given exogenous change in the nominal interest rate, the estimated impact of policy on economic activity increases monotonically with the response of the money supply; (3) the path of the real rate is not sufficient for determining policy impacts.
Leeper, Eric M. and Jennifer E. Roush. "Putting 'M' Back in Monetary Policy," Journal of Money, Credit and Banking 35(6): 1217-1256. Dec. 2003
International Finance Discussion Papers, number 761. Board of Governors of the Federal Reserve System.
Eric M. Leeper & Jennifer E. Roush, 2003. "Putting "M" back in monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 1217-1264. citation courtesy of