American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals
American Economic Review
vol. 101,
no. 1, February 2011
(pp. 109–28)
Abstract
By extending his data, we document the instability of low-frequency regression coefficients that Lucas (1980) used to express the quantity theory of money. We impute the differences in these regression coefficients to differences in monetary policies across periods. A DSGE model estimated over a subsample like Lucas's implies values of the regression coefficients that confirm Lucas's results for his sample period. But perturbing monetary policy rule parameters away from the values estimated over Lucas's subsample alters the regression coefficients in ways that reproduce their instability over our longer sample. (JEL C51, E23, E31, E43, E51, E52)Citation
Sargent, Thomas J., and Paolo Surico. 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals." American Economic Review, 101 (1): 109–28. DOI: 10.1257/aer.101.1.109Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E51 Money Supply; Credit; Money Multipliers
- E52 Monetary Policy