NO : WP-2023-07
AUTHOR : Taniya Ghosh and Abhishek Gorsi
TITLE : Money and Output Asymmetry: The unintended consequences of
central banks’ obsession with inflation
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.
Keywords: Monetarism, Monetary Aggregates, Monetary Policy, Money, Money-Income-Output,,
NARDL, Non-Linear Granger Causality
JEL Code: E420, E520, E580, E64