Precautionary money demand in a business-cycle model

Irina Telyukova () and Ludo Visschers

Journal of Monetary Economics, 2013, vol. 60, issue 8, 900-916

Abstract: Precautionary demand for money is significant in the data, and may have important implications for business-cycle dynamics of velocity and other nominal aggregates. Accounting for such dynamics is a standing challenge in monetary macroeconomics: standard business-cycle models that have incorporated money have failed to generate realistic predictions in this regard. In those models, the only uncertainty affecting money demand is aggregate. We investigate a model with uninsurable idiosyncratic uncertainty about liquidity need. The resulting precautionary motive for holding money produces substantial improvements in accounting for business-cycle behavior of nominal variables, at no cost to real variables.

Keywords: Precautionary money demand; Velocity of money; Business cycle; Idiosyncratic risk (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Working Paper: Precautionary Demand for Money in a Monetary Business Cycle Model (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:8:p:900-916

DOI: 10.1016/j.jmoneco.2013.08.006

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