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Money and output asymmetry: The Unintended consequences of central banks' obsession with inflation

Author

Listed:
  • Taniya Ghosh

    (Indira Gandhi Institute of Development Research)

  • Abhishek Gorsi

    (Indira Gandhi Institute of Development Research)

Abstract

The study reexamines the relationship between money and output for the US, UK, and the Euro Area using quarterly data up to 2022. Modern central banks are focused on controlling inflation, and adjust their monetary policy and liquidity accordingly. However, it is common practise to overlook the precise effects of those actions on other variables. Unlike prior research, which has mainly focused on the linear relationship, this paper examines the asymmetric impact of money on output. The results show that a decrease in the amount of money has a much more adverse impact on output than an increase. Globally, during COVID-19, there was an infusion of liquidity that might have been useful in the short term, but the withdrawal of that excess liquidity, as been done currently by some major economies, may have long-term effects on those economies' output.

Suggested Citation

  • Taniya Ghosh & Abhishek Gorsi, 2023. "Money and output asymmetry: The Unintended consequences of central banks' obsession with inflation," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-07, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2023-07
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2023-007.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetarism; Monetary Aggregates; Monetary Policy; Money; Money-Income-Output; NARDL; Non-Linear Granger Causality;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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