Lecture 6 Slides Post after

# Lecture 6 Slides Post after - Economics 134 Spring 2012...

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L ECTURE 6 Does Monetary Policy Matter? February 2, 2012 Economics 134 Christina Romer Spring 2012 David Romer

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Announcements Office hours today will be from 2:15 to 3:30. Problem Set 1 is being distributed. It is due a week from today. You may work together on the problems, provided that: You try each question yourself first. You must write up your answers yourself, in your own words.
D OES M ONETARY P OLICY M ATTER ? I. M ONEY -O UTPUT R EGRESSIONS

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A Simple Model of GDP Growth ∆ ln Y t = a + b ∆ ln M t + e t , where: - Y is real GDP; - M is the money stock; - e t reflects all other factors affecting growth; - a and b are parameters; - denotes change; - ln denotes natural log.
Estimating the Parameters of the Model Using a Regression ∆ ln Y t = a + b ∆ ln M t + e t . - Choose a and b to fit the data as well as possible. - That is, so a + b ln M t is on average as close as possible to ln Y t . - This is an “ordinary least squares” (or “OLS”) regression.

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The Results of a Typical Money– Output Regression Specification: ∆ ln Y t = a + b 0 ∆ ln M t + b 1 ∆ ln M t-1 + b 2 ∆ ln M t-2 + b 3 ∆ ln M t-3 + b 4 ∆ ln M t-4 + ct + e t
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