Money matters for macro fluctuations – Fed paper

federal-reserve

Movements in monetary aggregates have a significant ability to predict macroeconomic fluctuations, in contrast to earlier research, according to a working paper published by the Federal Reserve.

Sarah Baker, David Lopez-Salido and Edward Nelson build a new dataset and correct for what they see as shortcomings in earlier research, finding that from 1959–2008, monetary aggregates had a correlation with output that mostly outperformed the money-and-credit metrics of earlier work. They also find

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