Money, Prices and Liquidity Effects: Separating Demand from Supply

Jagjit Chadha, Luisa Corrado and Qi Sun

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In the canonical monetary policy model, money is endogenous to the optimal path for interest rates and output. But when liquidity provision by banks dominates the demand for transactions money from the real economy, money is likely to contain information for future output and inflation because of its impact on financial spreads. And so we decompose broad money into primitive demand and supply shocks. We find that supply shocks have dominated the time series in both the UK and the US in the short to medium term. We further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation.

Keywords: Money; Prices; Bayesian VAR Identi.cation; Sign Restrictions. (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Money, Prices and Liquidity Effects: Separating Demand from Supply (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0855

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