Money, Prices, Interest Rates and the Business Cycle
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations...
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| Veröffentlicht in: | The review of economics and statistics 1996-02, Vol.78 (1), p.35-53 |
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| creator | King, Robert G. Watson, Mark W. |
| description | The mechanisms governing the relationship of money, prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models--a real business cycle model, a sticky price model and a liquidity effect model--account for these central facts. While the models have diverse successes and failures, none can account for the fact that real and nominal interest rates are "inverted leading indicators" of real economic activity. That is, none of the models captures the post-war U.S. business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future. |
| doi_str_mv | 10.2307/2109846 |
| format | Article |
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| ispartof | The review of economics and statistics, 1996-02, Vol.78 (1), p.35-53 |
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| language | eng |
| recordid | cdi_proquest_journals_194680723 |
| source | Periodicals Index Online; JSTOR Mathematics & Statistics; EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing |
| subjects | Business cycles Correlation analysis Economic activity Economic fluctuations Economic growth rate Economic models Interest rates Macroeconomic modeling Macroeconomics Modeling Money Nominal interest rates Parametric models Price levels Prices Productivity Rational expectations Studies Symposium on Developments in Business Cycle Research |
| title | Money, Prices, Interest Rates and the Business Cycle |
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