IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/vtopics.6y2006i1n9.html
   My bibliography  Save this article

Long-Run Money Growth and the Liquidity Effect

Author

Listed:
  • Cothren Richard

    (Virginia Tech)

  • Edwards Jeffrey A

    (Texas Tech University)

Abstract

Limited participation models explain a short-run liquidity effect as arising from the redistribution of income from non-participants in the bond market to participants in the bond market. However, these models also imply that the liquidity effect is smaller the larger is long-run money growth. Using cross-country data, we show that in the short run, the correlation between money growth and the nominal interest rate, and the regression coefficient of the latter regressed on the former are larger (algebraically), the larger is long-run money growth. These results are consistent with this latter implication of the limited participation models.

Suggested Citation

  • Cothren Richard & Edwards Jeffrey A, 2006. "Long-Run Money Growth and the Liquidity Effect," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-15, April.
    • Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:9
    DOI: 10.2202/1534-5998.1409
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1534-5998.1409
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1534-5998.1409?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bernanke, Ben S. & Mihov, Ilian, 1998. "The liquidity effect and long-run neutrality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 149-194, December.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    3. Alvarez, Fernando & Atkeson, Andrew, 1997. "Money and exchange rates in the Grossman-Weiss-Rotemberg model," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 619-640, December.
    4. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    5. A. Bhargava & L. Franzini & W. Narendranathan, 2006. "Serial Correlation and the Fixed Effects Model," World Scientific Book Chapters, in: Econometrics, Statistics And Computational Approaches In Food And Health Sciences, chapter 4, pages 61-77, World Scientific Publishing Co. Pte. Ltd..
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124.
    8. Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 451-465.
    9. William D. Lastrapes & W. Douglas McMillin, 2004. "Cross-Country Variation in the Liquidity Effect: The Role of Financial Markets," Economic Journal, Royal Economic Society, vol. 114(498), pages 890-915, October.
    10. Fernando Alvarez & Andrew Atkeson & Patrick J. Kehoe, 2002. "Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 73-112, February.
    11. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    12. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(6), pages 814-823, December.
    13. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    14. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elbahnasawy, Nasr G., 2014. "E-Government, Internet Adoption, and Corruption: An Empirical Investigation," World Development, Elsevier, vol. 57(C), pages 114-126.
    2. Marcus Tamm & Harald Tauchmann & Stefan Greß & Jürgen Wasem, 2005. "Price Elasticities and Social Health Insurance Choice in Germany: A Dynamic Panel Data Approach," RWI Discussion Papers 0028, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
    3. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    4. Jochen Hartwig, 2008. "Has Health Capital Formation Cured 'Baumol's Disease'? - Panel Granger Causality Evidence for OECD Countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich.
    5. Roberto Dell'Anno & Adalgiso Amendola, 2015. "Social Exclusion and Economic Growth: An Empirical Investigation in European Economies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(2), pages 274-301, June.
    6. Edwards, Jeffrey A. & Kasibhatla, Krishna, 2009. "Dynamic heterogeneity in cross-country growth relationships," Economic Modelling, Elsevier, vol. 26(2), pages 445-455, March.
    7. Herrmann, Sabine & Jochem, Axel, 2003. "Die internationale Integration der Geldmärkte in den mittel- und osteuropäischen Beitrittsländern: Abweichungen von der gedeckten Zinsparität, Kapitalverkehrskontrollen und Ineffizienzen des Finanzsek," Discussion Paper Series 1: Economic Studies 2003,07, Deutsche Bundesbank.
    8. DELL'ANNO, Roberto & VILLA, Stefania, 2012. "Growth in Transition Countries: Big Bang versus Gradualism," CELPE Discussion Papers 122, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    9. Jochem, Axel & Herrmann, Sabine, 2003. "The international integration of money markets in the central and east European accession countries: deviations from covered interest parity, capital controls and inefficiencies in the financial secto," Discussion Paper Series 1: Economic Studies 2003,07, Deutsche Bundesbank.
    10. Roberto Dell'Anno & Stefania Villa, 2013. "Growth in transition countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(3), pages 381-417, July.
    11. repec:zbw:rwidps:0028 is not listed on IDEAS
    12. Greß, Stefan & Tamm, Marcus & Tauchmann, Harald & Wasem, Jürgen, 2005. "Price Elasticities and Social Health Insurance Choice in Germany: A Dynamic Panel Data Approach," RWI Discussion Papers 28, RWI - Leibniz-Institut für Wirtschaftsforschung.
    13. Bertrand, Olivier & Betschinger, Marie-Ann, 2012. "Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 413-437.
    14. Luis Ayala & Olga Cantó & Juan G. Rodríguez, 2011. "Poverty and the business cycle: The role of the intra-household distribution of unemployment," Working Papers 222, ECINEQ, Society for the Study of Economic Inequality.
    15. Aykut Karakaya & Ayten Turan Kurtaran & Ahmet Kurtaran, 2017. "Firm Value and External Financing Needs," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(6), pages 69-81, June.
    16. Canh Phuc Nguyen & Thanh Dinh Su, 2022. "Export Dynamics and Income Inequality: New Evidence on Export Quality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(3), pages 1063-1113, October.
    17. Arturas Juodis, 2013. "Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence," UvA-Econometrics Working Papers 13-08, Universiteit van Amsterdam, Dept. of Econometrics.
    18. Tobias Hagen, 2010. "Effects of parliamentary elections on primary budget deficits in OECD countries - robustness of the results with regard to alternative econometric estimators," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 135-139, January.
    19. Abonazel, Mohamed R., 2016. "Bias Correction Methods for Dynamic Panel Data Models with Fixed Effects," MPRA Paper 70628, University Library of Munich, Germany.
    20. José María ARRANZ & Carlos GARCÍA SERRANO & Virginia HERNANZ, 2013. "Active labour market policies in Spain: A macroeconomic evaluation," International Labour Review, International Labour Organization, vol. 152(2), pages 327-348, June.
    21. Maurice J.G. Bun & Sarafidis, V., 2013. "Dynamic Panel Data Models," UvA-Econometrics Working Papers 13-01, Universiteit van Amsterdam, Dept. of Econometrics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.