inside money vs. outside money

Money, Interest Rates and Output Revisited

There is a long tradition in economic research that studies the relationship between money, interest rates and output. In this paper, we specify VARs using cyclical measures of monetary aggregate, interest rates, and output to assess whether money has marginal predictive content for output. Because there is no consensus on how to identify the cyclical component, we consider four alternatives. One goal is to re-examine the result that when the interest rate variable is included, the marginal predictive content of money become insignificant.

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