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American Economic Review Vol. 101 No. 1 2011

Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals

Thomas J. Sargent1; Paolo Surico2

1 Department of Economics, New York University, 19 W. Fourth Street, New York, NY 10012-1119, and Hoover Institution. · 2 Department of Economics, London Business School and CEPR, Department of Economics, London Business School, Regent's Park, London NW1 4SA.

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.

DOI
10.1257/aer.101.1.109
Volume
101
Issue
1
Pages
109-128
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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