Money, Prices and Liquidity Effects: Separating Demand from Supply

This file is part of IDEAS, which uses RePEc data

Money, Prices and Liquidity Effects: Separating Demand from Supply

Author Info

Chadha, J.S.
Corrado, L.
Sun, Q.

Additional information is available for the following registered author(s):

Abstract

In the canonical monetary policy model, money is endogenous to the optimal path for interest rates and output. But when liquidity provision by banks dominates the demand for transactions money from the real economy, money is likely to contain information for future output and inflation because of its impact on financial spreads. And so we decompose broad money into primitive demand and supply shocks. We find that supply shocks have dominated the time series in both the UK and the US in the short to medium term. We further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0855.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:cam:camdae:0855

Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

For technical questions regarding this item, or to correct its listing, contact: (Howard Cobb).

Other versions of this item:

Paper
- Jagjit S. Chadha & Luisa Corrado & Qi Sun, 2008. "Money, Prices and Liquidity Effects: Separating Demand from Supply," Studies in Economics 0817, Department of Economics, University of Kent. [Downloadable!]

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-07 (All new papers)
NEP-CBA-2008-12-07 (Central Banking)
NEP-MAC-2008-12-07 (Macroeconomics)
NEP-MON-2008-12-07 (Monetary Economics)
NEP-OPM-2008-12-07 (Open MacroEconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Jagjit S. Chadha & Luisa Corrado & Sean Holly, 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Studies in Economics 0816, Department of Economics, University of Kent. [Downloadable!]
Other versions:
- Chadha, J.S. & Corrado, L. & Holly, S., 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Cambridge Working Papers in Economics 0852, Faculty of Economics, University of Cambridge. [Downloadable!]
Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Other versions:
- Ben S. Bernanke & Ilian Mihov, 1998. "The Liquidity Effect and Long-Run Neutrality," NBER Working Papers 6608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Uhlig, Harald, 1994. "What Macroeconomists Should Know about Unit Roots: A Bayesian Perspective," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 645-671, August. [Downloadable!]
H. Uhlig, . "Did the Fed Surprise the Markets in 2001? A case study for VARs with Sign Restrictions," Sonderforschungsbereich 373 2001-98, Humboldt Universitaet Berlin.
Other versions:
- Harald Uhlig, 2001. "Did the Fed Surprise the Markets in 2001? A Case Study for VARs with Sign Restrictions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Uhlig, H., 2001. "Did the FED surprise the markets in 2001? : a case study for vars with sign restrictions," Discussion Paper 88, Tilburg University, Center for Economic Research. [Downloadable!]
Charles T. Carlstrom & Timothy S. Fuerst, 1995. "Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy," Working Paper 9504, Federal Reserve Bank of Cleveland. [Downloadable!]
Other versions:
- Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November. [Downloadable!] (restricted)
Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December. [Downloadable!] (restricted)
Labadie, Pamela, 1994. "The term structure of interest rates over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 671-697. [Downloadable!] (restricted)
Other versions:
- Pamela Labadie, 1991. "The term structure of interest rates over the business cycle," Finance and Economics Discussion Series 159, Board of Governors of the Federal Reserve System (U.S.).
William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
Other versions:
- William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
- Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May. [Downloadable!] (restricted)
Canova, Fabio, 2002. "Validating Monetary DSGE Models through VARs," CEPR Discussion Papers 3442, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Ireland, Peter N, 1996. "The Role of Countercyclical Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 704-23, August. [Downloadable!] (restricted)
Dedola, Luca & Neri, Stefano, 2007. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 512-549, March. [Downloadable!] (restricted)
Other versions:
- Luca Dedola & Stefano Neri, 2006. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Temi di discussione (Economic working papers) 607, Bank of Italy, Economic Research Department. [Downloadable!]
- Luca Dedola & Stefano Neri, 2006. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Working Paper Series 705, European Central Bank. [Downloadable!]
- Dedola, Luca & Neri, Stefano, 2004. "What Does A Technology Shock Do? A VAR Analysis with Model-based Sign Restrictions," CEPR Discussion Papers 4537, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September. [Downloadable!] (restricted)
Other versions:
- Fabio Canova & Gianni De Nicolo, 2000. "Monetary disturbances matter for business fluctuations in the G-7," International Finance Discussion Papers 660, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Goodfriend, Marvin & McCallum, Bennett T., 2007. "Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1480-1507, July. [Downloadable!] (restricted)
Other versions:
- Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and Interest Rates in Monetary Policy Analysis: A Quantitative Exploration," NBER Working Papers 13207, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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. [Downloadable!] (restricted)
Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March. [Downloadable!] (restricted)
Other versions:
- Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Uhlig, H., 1999. "What are the effects of monetary policy on output? : results from an agnostic identification procedure," Discussion Paper 28, Tilburg University, Center for Economic Research. [Downloadable!]
Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August. [Downloadable!] (restricted)
Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier. [Downloadable!] (restricted)
Other versions:
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Jagjit S. Chadha & Luisa Corrado & Sean Holly, 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Studies in Economics 0816, Department of Economics, University of Kent. [Downloadable!]
Other versions:
- Chadha, J.S. & Corrado, L. & Holly, S., 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Cambridge Working Papers in Economics 0852, Faculty of Economics, University of Cambridge. [Downloadable!]

Statistics

Access and download statistics

Did you know? Use the JEL tree to browse through the database by subfields.

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.