A Monetary Model with Strong Liquidity Effects
نویسنده
چکیده
This paper studies the joint business cycle dynamics of inflation, 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. JEL Classification: E31, E32, E41, E42, E51
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