Are the lags in the effects of monetary policy variable?

A modified version of the St. Louis reduced form model is used to examine the effects of: 1. the stage of the business cycle, 2. the stance of the monetary policy, and 3. the long-term trend on the variability in the relationship between changes in the monetary base and the aggregate domestic demand...

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Bibliographic Details
Published in:Journal of monetary economics 1979, Vol.5 (1), p.105-121
Main Author: Tanner, J.Ernest
Format: Article
Language:English
Subjects:
Analysis
Changes
Effects
Monetary policy
Money
Recessions
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Summary:A modified version of the St. Louis reduced form model is used to examine the effects of: 1. the stage of the business cycle, 2. the stance of the monetary policy, and 3. the long-term trend on the variability in the relationship between changes in the monetary base and the aggregate domestic demand. A model of variable distributed lags considers the lag relationship between changes in the stock of money and changes in aggregate demand. The results for lags with fixed weights and the estimates of the variable lag weights are presented. The variable lag weights improved the power of the equation in explaining variations in the growth rate of income. The point estimates of the variable weights indicate that the effects of monetary policy are not symmetrical. Monetary policy can pull an economy into a recession but cannot get is out of a recession. The lags tend to lengthen in response to recessions and tighter money policies. The results indicate that discretionary monetary policies are fragile instruments of economic control.
ISSN:0304-3932
1873-1295
DOI:10.1016/0304-3932(79)90027-8