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Money and velocity during financial crises: From the great depression to the great recession

Richard G. Anderson, Michael Bordo and John Duca

Journal of Economic Dynamics and Control, 2017, vol. 81, issue C, 32-49

Abstract: This study models the demand for a broad monetary aggregate (M2) from the Great Depression through the Great Recession. Key to the model is the interaction between a measure of time-variation in economic agents’ perceived financial risk and an index of the cost of portfolio adjustment. The finding of a useful money demand relationship suggests that skepticism regarding the indicator role of a broad, liquid money aggregate as a policy guide may be exaggerated. Further, our model provides some guidance for policymakers who face the challenge of unwinding large balance sheets as risk premia return to normal and velocity adjusts.

Keywords: Money demand; Financial crises; Monetary policy; Liquidity; Financial innovation (search for similar items in EconPapers)
JEL-codes: E41 E50 G11 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Money and Velocity During Financial Crises: From the Great Depression to the Great Recession (2016) Downloads
Working Paper: Money and Velocity During Financial Crises: From the Great Depression to the Great Recession (2016) Downloads
Working Paper: Money and velocity during financial crises: from the Great Depression to the Great Recession (2015) Downloads
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