Money, Prices, Interest Rates and the Business Cycle

Publisher Website
Google Scholar
Abstract
The mechanisms governing the relationship of money, prices and interest rates to the business cycle are one of the most studied and most disputed topics in macroeconomics. In this paper, we first document key empirical aspects of this relationship. We then ask how well three benchmark rational expectations macroeconomic models - a real business cycle model, a sticky price model and a liquidity effect model - account for these central facts. While the models have diverse successses and failures, none can account for the fact that both real and nominal interest rates are "inverted leading indicators" of real economic activity. That is, none of the models captures the post-

This publication has 0 references indexed in Scilit: