A Monetary Model with Strong Liquidity Effects

Marcus Hagedorn

No 353, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: This paper studies the joint business cycle dynamics of in ation, money growth, nominal and real interest rates and the velocity of money. I extend and estimate a standard cash and credit monetary model by adding idiosyncratic preference shocks to cash consumption as well as a banking sector. The estimated model accounts very well for the business cycle data, a finding that standard monetary models have not been able to generate. I find that the quantitative performance of the model is explained through substantial liquidity effects.

Keywords: Money; Banking; Monetary Transmission Mechanism; Liquidity; Business Cycles (search for similar items in EconPapers)
JEL-codes: E31 E32 E41 E42 E51 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:353

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