| Abstract: |
We provide empirical support for a DSGE model with nominal wage stickiness
where growth is driven by learning-by-doing and money shocks and their
variance are allowed to impact on long-run output growth. In our theoretical
model the variance of monetary shocks has a negative effect on growth, while
output volatility is good for growth as a positive relationship exists.
Utilising a bivariate GARCH-M model we test the empirical conditional mean and
variance relationships of nominal money and production growth rates in the G7
countries. We corroborate the theoretical model predictions with evidence from
Bonferroni multiple tests across the G7. |