Size, persistence and interrelation of nominal and real shocks: Some evidence from four countries

One of the major themes in Karl Brunner's work is the comparative size, persistence and interaction of real and monetary impulses. The paper uses a univariate, multi-state Kalman filter to forecast quarterly values of money, prices, output, velocity and exchange rates during the Bretton Woods and post-Bretton Woods monetary regimes and to compute shocks or impulses. Vector autoregression is used to relate the shocks and to compare the two regimes. Several propositions are tested including the Phillips curve, currency substitution, ‘reverse causation’ and the role of monetary impulses as a cause of fluctuations in output and prices.