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Monetary aggregates and the business cycle

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  • Sustek, Roman

Abstract

A monetary aggregate consisting predominantly of zero-maturity deposits, called MZM, tends to systematically lead output in the US business cycle. Such fluctuations are observed both before and after the 1979 monetary policy change. Similar dynamics are obtained in a model with multi-stage production and purchase-size heterogeneity when agents optimally choose their mix of cash, checkable, and time deposits used in transactions. The causality in the model runs from real activity to money, rather than the other way around. Although the monetary base is endogenous, through a Taylor-type rule, the lead in MZM is primarily driven by deposit creation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 4 (May)
Pages: 451-465

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Handle: RePEc:eee:moneco:v:57:y:2010:i:4:p:451-465

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Monetary aggregates Business cycle General equilibrium;

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Cited by:
  1. Manjong Lee & Sung Guan Yun, 2014. "Composition of Portfolio and Cost of Inflation," Discussion Paper Series 1403, Institute of Economic Research, Korea University.
  2. Michael T. Belongia & Peter N. Ireland, 2013. "Instability: Monetary and Real," Boston College Working Papers in Economics 830, Boston College Department of Economics.

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