This paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output. Money is endogenous because both monetary policy and deposit creation are endogenous. Parameters are selected according to the simulated moments estimation technique. While the estimated model succeeds along some dimensions in matching properties of postwar U.S. data, its failure to match key patterns of lead-lag correlations seems to cast doubt on the ability of endogenous money determination, by itself, to quantitatively account for the observed money-output correlations.

This paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output. Money is endogenous because both monetary policy and deposit creation are endogenous. Parameters are selected according to the simulated moments estimation technique. While the estimated model succeeds along some dimensions in matching properties of postwar U.S. data, its failure to match key patterns of lead-lag correlations seems to cast doubt on the ability of endogenous money determination, by itself, to quantitatively account for the observed money-output correlations.

This paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default-free bonds. The key feature of the model is that some assets other than money play a special role in facilitating transactions, which affects the rate of return that they offer. The model is capable of producing a low risk-free rate, a high equity premium, and an average positive relationship between maturity and term premium for default-free bonds. The model's implications for the joint distribution of asset returns, velocity, inflation, money growth, and consumption growth are also compared to the behavior of these variables in the U.S. economy.

This paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default-free bonds. The key feature of the model is that some assets other than money play a special role in facilitating transactions, which affects the rate of return that they offer. The model is capable of producing a low risk-free rate, a high equity premium, and an average positive relationship between maturity and term premium for default-free bonds. The model's implications for the joint distribution of asset returns, velocity, inflation, money growth, and consumption growth are also compared to the behavior of these variables in the U.S. economy.