We identify the effects of monetary policy shocks on macroeconomic variables in VARs using the Divisia M4 measure of money as the policy indicator variable. We obtain theoretically sensible responses—whether or not a commodity price index is included. Thus, we eliminate the well-known...

The currency equivalent index measures the discounted economic capital stock of money producing the monetary service flow, but does so under assumptions that cause downward bias. We propose an extension that will correct for a significant amount of this bias.

Historically, attempts to solve the liquidity puzzle focus on narrowly defined monetary aggregates, such as non-borrowed reserves, the monetary base, or M1. Many of these efforts fail to find a short-term negative correlation between interest rates and monetary policy innovations. More recent...

This paper structurally interprets empirical results obtained from Blanchard and Quah (1989) decompositions of output into permanent and transitory shocks. This is done based on assumptions about the qualitative responses of variables to structural shocks that are consistent with many different...