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COULD STABLE MONEY HAVE AVERTED THE GREAT CONTRACTION?
Author(s) -
BORDO MICHAEL D.,
CHOUDHRI EHSAN U.,
SCHWARTZ ANNA J.
Publication year - 1995
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1995.tb01876.x
Subject(s) - economics , monetary economics , stock (firearms) , monetary policy , contraction (grammar) , money supply , keynesian economics , endocrinology , medicine , mechanical engineering , engineering
We test the hypothesis that the Great Contraction would have been attenuated had the Federal Reserve not allowed the money stock to decline. We simulate a model that estimates separate relations for output and the price level and assumes that output and price dynamics are not especially sensitive to policy changes. The simulations include a strong and a weak form of Friedman's constant money growth rule. The results support the hypothesis that the Great Contraction would have been mitigated and shortened had the Federal Reserve followed a constant money growth rule.