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Data uncertainty and the role of money as an information variable for monetary policy

Author

Listed:
  • Günter Coenen
  • Andrew T. Levin
  • Volker W. Wieland
Abstract
This paper demonstrates that money can play an important role as an information variable and may result in major improvements in current output estimates. However, the specific nature of this role depends on the magnitude of the output measurement error relative to the money demand shock. In particular, we find noticeable but small improvements in output estimates due to the inclusion of money growth in the information set. Money plays a quantitatively more important role with regard to output estimation if we allow for a contribution of monetary analysis in reducing uncertainty due to money demand shocks. In this case, money also helps to reduce uncertainty about output forecasts.

Suggested Citation

  • Günter Coenen & Andrew T. Levin & Volker W. Wieland, 2001. "Data uncertainty and the role of money as an information variable for monetary policy," Finance and Economics Discussion Series 2001-54, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2001-54
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    References listed on IDEAS

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    More about this item

    Keywords

    Demand for money; Monetary theory; Monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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