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A Classical View of the Business Cycle
Author(s) -
BELONGIA MICHAEL T.,
IRELAND PETER N.
Publication year - 2021
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12767
Subject(s) - economics , new keynesian economics , business cycle , prior probability , money supply , interest rate , bayesian probability , econometrics , keynesian economics , bayesian vector autoregression , monetary policy , interest rate channel , vector autoregression , stability (learning theory) , monetary economics , inflation targeting , computer science , credit channel , mathematics , statistics , machine learning
In the 1920s, Irving Fisher described how variations in the price level, presumably caused by changes in the money stock, were associated with cyclical movements in output and employment. At the same time, Holbrook Working designed a rule for achieving price stability through control of the money supply. This paper develops a structural vector autoregression that allows these “classical” channels of monetary transmission to operate alongside the modern New Keynesian interest rate channel. Even with Bayesian priors favoring the New Keynesian view, the U.S. data produce posterior distributions for the model's parameters consistent with the ideas of Fisher and Working.