Two illustrations of the quantity theory of money: Breakdowns and revivals

Thomas J. Sargent, Paolo Surico

    Research output: Contribution to journalArticle

    Abstract

    By extending his data, we document the instability of low-frequency regression coefficients that Lucas (1980) used to express the quantity theory of money. We impute the differences in these regression coefficients to differences in monetary policies across periods. A DSGE model estimated over a subsample like Lucas's implies values of the regression coefficients that confirm Lucas's results for his sample period. But perturbing monetary policy rule parameters away from the values estimated over Lucas's subsample alters the regression coefficients in ways that reproduce their instability over our longer sample.

    Original languageEnglish (US)
    Pages (from-to)109-128
    Number of pages20
    JournalAmerican Economic Review
    Volume101
    Issue number1
    DOIs
    StatePublished - Feb 2011

    ASJC Scopus subject areas

    • Economics and Econometrics

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