Money, Output, and Reverse Causation
Date Issued
2008
Date
2008
Author(s)
Li, Cheng-Yu
Abstract
A dynamic general equilibrium model, in which money and monetary policy are both endogenous, is calibrated and simulated. It is then confronted with the dynamic cross-correlation and statistical causality of money and output in Taiwan time series data. The model economy performs well in matching the empirical dynamic cross-correlation of money aggregate M1 and output. However, it leaves few unexplainable causes of empirical dynamic cross-correlation of monetary base (MB) and output, even with a modification to reflect that the central bank cannot acknowledge the exogenous technology shock immediately. In addition, Granger causality test misjudged the economic causality of MB and output in the model. Therefore, the reliability of such statistical test should be weakened in the aspect of representing real economic causality. Furthermore, through the case in which monetary policy rule is different in two empirical stages, the model proves that endogenous monetary policy is nearly neutral.
Subjects
Inside Money
Outside Money
Endogenous Monetary Policy
Reverse Causation
Type
thesis
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