Center for Economic Research, Department of Economics, University of Minnesota
Sudden upward jumps in the interest rate tend to precede
sharp slides in output by 6 months to a little over a year.
They also tend to precede slightly drops in the rate of
growth in the money stock. In an earlier paper (1980) I
pointed out that these empirical generalizations apply to
both interwar and postwar data in the U.S. I argued in that
paper that it was difficult to account for this persistent
pattern under a monetarist interpretation of the business
This paper shows that the pattern persists in data for
West Germany, France, and Britain. It argues again that a
monetarist interpretation of the results is strained -- moreso
in the light of the paper's international evidence --
and suggests that the results are most naturally explained
by passive response of the monetary system to non-monetary
cyclical influences. The quick response of money stock to
interest rates, together with the anticipation of cyclical
developments by the financial markets which set interest
rates, can account for the apparently strong causal role of
the money stock in some countries and periods when interest
rates are omitted from the system.
Sims, C.A., (1980), "International Evidence on Monetary Factors in Macroeconomic Fluctuations", Discussion Paper No. 137, Center for Economic Research, Department of Economics, University of Minnesota.
Sims, Christopher A..
International Evidence on Monetary Factors in Macroeconomic Fluctuations.
Center for Economic Research, Department of Economics, University of Minnesota.
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