Dynamic IS curves with and without money: An international comparison

When money is added to a dynamic IS model, evidence from six countries indicates that money growth usually helps predict the GDP gap and that the predictive power of a short-term real interest is much weaker than previous work suggests. Thus, for dynamic IS models such as that used by Rudebusch, G.D., Svensson, L.E.O. [1999. Policy rules and inflation targeting. In: Taylor, J.B. (Ed.), Monetary Policy Rules. University of Chicago Press, Chicago, pp. 203-246; 2002. Eurosystem monetary targeting: lessons from US data. European Economic Review 46, 417-442], the omission of money appears to come at a high cost.