Multiscale Analysis of the Liquidity Effect in the UK Economy
Antonis Michis ()
Computational Economics, 2015, vol. 45, issue 4, 615-633
This study examines the existence of a liquidity effect in the UK economy over different time-scales. This analysis draws from the liquidity preference framework, an approach to interest rate determination, and uses wavelet multiscale analysis in the context of a standardised regression model. The modelling framework is similar to the one proposed by Cochrane ( 1989 ), however, instead of using a band-pass filter the model’s variables are analyzed with a wavelet multiresolution analysis which enables a more accurate estimation of the liquidity effect. The results suggest that, in short-term cycles, interest rates are influenced primarily by changes in the money supply (i.e., the liquidity effect). In medium- and long-term cycles, the liquidity effect becomes less important and interest rates are found to be more sensitive to income and price effects. Copyright Springer Science+Business Media New York 2015
Keywords: Interest rates; Money supply; Liquidity effect; Wavelets; E43; E51; C65 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:45:y:2015:i:4:p:615-633
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