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Besides some literature review, to evaluate the impact of MTM, it is necessary a quantitative measure that can be related consistently with policy changes. Researchers use statistical tools trying to find a correlation between income and money. However, this approach is not free of criticism, “it fails to establish convincingly either that money “caused” output or the reverse” . In the same paper is asserted that evidence that money matters is because the Federal Reserve is able to change rates without warning, in the short-run, changes in the interest rates cannot be associated with inflationary expectations.
Thus, they represent real interest rate changes and, as a consequence, they will affect real resources allocation. Another evidence found comes from the neutrality of money, “output growth is significantly correlated with money growth at lags of up to 10 years” , suggesting that monetary shocks affects real fluctuations. Examining movements in the monetary aggregates does not seem to be an appropriate approach, because “the variance in the innovations to broad measures of money are a combination of endogenous responses to real shocks (King and Plosser, 1984) and shifts in money demand (Bernanke and Blinder, 1992).
Kuttner and Mosser come up to an interesting analysis trying to assess MTM’s impact. They state that three challenges must be overcome. The first one is simultaneity, because “monetary policy loosens when economy weakens and tightens when economy strengthens”, making a difficult task identifying policy’s effects. The second one, as can be seen in previous sections, comes from the multiplicity of channels operating concurrently.
At last they address the problem of “isolating a change in the strength of the channels of monetary transmission thanks to the evolutionary nature of the changes under consideration”.
Although MTM seems to have importance, the paragraph in previous section affirming that now is not discussed MTM’s effectiveness look as if is not so true. Measuring MTM’s effects is an overwhelming task, involving many factors, which also are concurrent. Despite this, there are some studies affirming that there is no link between some MTMs and real variables, mainly in the bank lending channel. As an example, Rabin and Yeager, referencing Thorton, say that it is “ironic at a time when financial innovation and deregulation should have eroded its strength” .
Favero, Giavazzi and Flabbi , who perform case study of the monetary tightening of 1992 in Europe, also take this direction in their analysis, affirming that they did not find “evidence of a significant response of bank loans to the monetary tightening”. Many questions remain unanswered, but regardless of the above it seems that MTM are present in the short-run; even though of the difficulty of addressing their impact, and in the long-run seem to be not that important.
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