Precautionary Demand for Money in a Monetary Business Cycle Model

Irina Telyukova () and Ludo Visschers

No 906, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We investigate quantitative implications of precautionary demand for money 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 and find that the resulting precautionary motive for holding money produces substantial qualitative and quantitative improvements in accounting for business cycle behavior of nominal variables, at no cost to real variables.

Pages: 43 pages
Date: 2009, Revised 2009-06
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Precautionary demand for money in a monetary business cycle model (2011)
Working Paper: Precautionary demand for money in a monetary business cycle model (2011)
Working Paper: Precautionary Demand for Money in a Monetary Business Cycle Model (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:0906

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