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The source of fluctuations in money : Evidence from trade credit

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  • Ramey, Valerie A.

Abstract

This paper tests the importance of technology shocks versus financial shocks for explaining, fluctuations in money. The model presented extends the theory of King and Plosser by recognizing that both money and trade credit provide transactions services. The model shows that the comovements between money and trade credit can reveal the nature of the underlying shocks. The empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money. Thus, the results cast doubt on the hypothesis that nonfinancial technology shocks are the main source of the money-income correlation.

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

Volume (Year): 30 (1992)
Issue (Month): 2 (November)
Pages: 171-193

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Handle: RePEc:eee:moneco:v:30:y:1992:i:2:p:171-193
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Robert B. Litterman & Laurence M. Weiss, 1984. "Money, real interest rates, and output: a reinterpretation of postwar U.S. data," Staff Report 89, Federal Reserve Bank of Minneapolis.
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  14. J. Stephen Ferris, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, Oxford University Press, vol. 96(2), pages 243-270.
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  16. Martin S. Eichenbaum & Kenneth J. Singleton, 1986. "Do Equilibrium Real Business Cycle Theories Explain Post-War U.S. Business Cycles?," NBER Working Papers 1932, National Bureau of Economic Research, Inc.
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