The Source of Fluctuations in Money: Evidence From Trade Credit

Valerie Ramey

No 3756, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper tests the importance of technology shocks versus financial shocks for explaining, fluctuations in money. The model presented extends the theory of King and Plosser by recognizing that both money and trade credit provide transactions services. The model shows that the comovements between money and trade credit can reveal the nature of the underlying shocks. The empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money. Thus, the results cast doubt on the hypothesis that nonfinancial technology shocks are the main source of the money-income correlation.

Date: 1991-06
Note: EFG ME
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Published as Journal of Monetary Economics, 30, November 1992,: 171-193

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Journal Article: The source of fluctuations in money: Evidence from trade credit (1992)
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