Money and liquidity effects: Separating demand from supply

Jagjit Chadha (), Luisa Corrado and Qi Sun

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 9, 1732-1747

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 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 played a significant role in the time series in each of the USA, UK and Eurozone 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; Liquidity; Bayesian; VAR; identification; Sign; restrictions (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:9:p:1732-1747

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