When using reduced-form evidence to evaluate monetary policy and find that M affects Y, ________.
A) it is possible that we may suffer from reverse causation
B) we are sure that there is no reverse causation
C) there is never adverse selection
D) there is never moral hazard

Question

Quizplus · Accepted Answer

When using reduced-form evidence to evaluate monetary policy and finding that M affects Y, there is a possibility of reverse causation, which means that Y may also affect M. Therefore, we cannot be sure that the relationship between M and Y is solely a causal one.

When Using Reduced-Form Evidence to Evaluate Monetary Policy and Find