Market Intelligence Gathering and Money Demand
Seon Kim and
No 202004, Working Papers from University of Liverpool, Department of Economics
The observed money demand in the U.S. had a stable negative relation with the interest rate up until the 1990s. After this period, this relation fell apart and has never been restored. We show that the central bankís ability to gather information, referred to as market intelligence, matters to generate an upward-sloping money demand curve. We calibrate the model to the U.S. data for the period from 1990 to 2019 and show that market intelligence helps to match the money demand. We also show that it is beneficial for the society, since it mitigates the inefficiency associated with asymmetric information.
Keywords: Money demand; asymmetric information; mechanism design (search for similar items in EconPapers)
JEL-codes: D9 E4 E5 (search for similar items in EconPapers)
Pages: 32 pages
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:202004
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