The Effect of Monetary Policy on Economic Output

There is substantial research effort devoted to identifying a sufficient statistic for monetary policy. The purpose of this paper is to broaden the scope of the on-going investigation along three dimensions. First, we follow up the Rudebusch-Svensson claim of parameter instability in the output regressions by examining the statistical stability of the parameter estimates with post-1996 data. Second, we examine whether alternative measures of the cyclical component affect the correlation between money supply, interest rates and output. Third, we consider alternative measures of the money supply, permitting us to assess the distinct roles of inside and outside money in terms of the correlation between each component and output.