IDENTIFYING THE EFFECTS OF MONEY SUPPLY SHOCKS ON INDUSTRY-LEVEL OUTPUT

This paper examines the dynamic responses of industry-level output to money supply shocks. We identify money supply shocks by imposing long- run monetary neutrality on the vector autoregression of four aggregate variables (interest rate, output, real money, nominal money), and com bine these with weak contemporaneous restrictions to identify the dyna mic impact on industry-level output. We find that there is substantial variation in the response to such shocks across industries. Cross-ind ustry regressions show that these responses are positively related to the variance of industry-specific shocks, which provides support for L ucas's model of imperfect information. This result is consistent with some findings in the literature, but overturns others.