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Money Demand Accommodation: Impact on Macro-Dynamics and Policy Consequences

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Author Info

  • Javier Gómez

    ()
    (IESE Business School, University of Navarra)

  • Antonio Moreno

    ()
    (Universidad de Navarra)

  • Fernando Pérez de Gracia

    ()
    (Universidad de Navarra)

Abstract

In this paper we account for the U.S. Fed's response to money demand shocks by allowing for less-than-complete accommodation in the estimation of its money supply policy rule. We estimate a significantly lower degree of money accommodation in the 1979-1982 period than before and after. We identify the path of money demand and money supply shocks and show their effects on the money market, output and inflation. Both money demand and money supply shocks have been considerably less destabilizing since 1984. We also find that monetary policy was significantly pro-cyclical in the 70s. Additionally, the price puzzle disappears for two of the three subperiods considered in the study.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random482ac104b1c71/1254239189_WP_UNAV_07_08.pdf
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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 07/08.

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Length: 26 pages
Date of creation: 11 Oct 2008
Date of revision:
Publication status: Forthcoming, Journal of Policy Modeling
Handle: RePEc:una:unccee:wp0708

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Web page: http://www.unav.es/facultad/econom

Related research

Keywords: Money demand shocks; money demand accommodation; monetary policy procedures; macroeconomic dynamics;

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References

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Cited by:
  1. Muhanji, Stella & Malikane, Christopher & Ojah, Kalu, 2013. "Price and liquidity puzzles of a monetary shock: Evidence from indebted African economies," Economic Modelling, Elsevier, vol. 33(C), pages 620-630.
  2. Kumar, Saten & Webber, Don J. & Fargher, Scott, 2013. "Money demand stability: A case study of Nigeria," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 978-991.
  3. Germán López-Espinosa & Antonio Moreno & Fernando Pérez de Gracia, 2011. "Banks’ Net Interest Margin in the 2000s: A Macro-Accounting International Perspective," Faculty Working Papers 11/11, School of Economics and Business Administration, University of Navarra.
  4. El-Shagi, Makram & Giesen, Sebastian, 2013. "Money and inflation: Consequences of the recent monetary policy," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 520-537.

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