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L
ECTURE
2
The Effects of Monetary Changes:
Narrative Evidence and Natural Experiments
September 7, 2011
Economics 210c/236a
Christina Romer
Fall 2011
David Romer
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View Full Document I.
A
NDERSEN AND
J
ORDAN
, “M
ONETARY AND
F
ISCAL
A
CTIONS
:
A T
EST OF
T
HEIR
R
ELATIVE
I
MPORTANCE IN
E
CONOMIC
S
TABILIZATION
”
A simple model of the determination
of some macro outcome
where:

y
is some macroeconomic variable of interest;

m
is a measure of monetary developments;

e
is other influences on
y
;

N
is the horizon over which
m
affects y.
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View Full Document Potential Problems with the St. Louis Equation
Potential Problems with the St. Louis Equation
1. Endogenous policy causing correlation between e
and the m’s.
2. Developments in the private economy causing
correlation between e and the m’s.
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View Full Document 2 General Comments about OmittedVariable Bias
1. Think in terms of omittedvariable bias or
correlation of righthand side variables with the
residual, not
in terms of simultaneity or
endogeneity.
2. It’s always good to think about what direction
we
expect bias in OLS to go.
II.
F
RIEDMAN AND
S
CHWARTZ
, “A S
UMMING
U
P
”
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This note was uploaded on 02/28/2012 for the course ECON 210c taught by Professor Romer,c during the Fall '08 term at University of California, Berkeley.
 Fall '08
 Romer,C
 Economics

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