This paper analyzes how real supply shocks affect monetary policy. Although
it is widely accepted that money growth and inflation are one-to-one relat
ed in the long run, short run deviations are usually the case. Theoreticall
y, we analyze whether such short run deviations can be attributed to global
real supply shocks impinging on the economy, and empirically we provide ev
idence in favor of this hypothesis as well confirming that the money growth
rate and inflation is one-to-one related in the long run for the United St
ates. (C) 2001 Elsevier Science B.V, All rights reserved.