MONETARY REGIMES, MONEY SUPPLY, AND THE USA BUSINESS CYCLE SINCE 1959: IMPLICATIONS FOR MONETARY POLICY TODAY. (20th October 2022)

• Record Type: Journal Article
• Authors: Hollander, Hylton; Christensen, Lars
• Is Part Of: Macroeconomic dynamics. Volume 26:Number 7(2022)
• Page Start: 1806
• Page End: 1832
• Publication Date: 2022-10-20
• Subjects: Monetary Regimes -- Monetary Policy -- Money Demand -- USA Business Cycle; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S1365100521000067
• Languages: English
• ISSNs: 1365-1005

Abstract

Abstract : The monetary authority's choice of operating procedure has significant implications for the role of monetary aggregates and interest rate policy on the business cycle. Using a dynamic general equilibrium model, we show that the type of endogenous monetary regime, together with the interaction between money supply and demand, does well to capture the actual behavior of a monetary economy—the USA. The results suggest that the evolution toward a stricter interest rate-targeting regime renders central bank balance sheet expansions ineffective. In the context of the 2007–2009 Great Recession, a more flexible interest rate-targeting regime would have led to a significant monetary expansion and more rapid economic recovery in the USA.