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Market Intelligence Gathering and Money Demand

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  • Seon Tae Kim
  • Alessandro Marchesiani

Abstract

The observed money demand in the U.S. had a stable negative relation with the interest rate up until the 1990s. After this period, this relation fell apart and has never been restored. We show that the central bankís ability to gather information, referred to as market intelligence, matters to generate an upward-sloping money demand curve. We calibrate the model to the U.S. data for the period from 1990 to 2019 and show that market intelligence helps to match the money demand. We also show that it is beneficial for the society, since it mitigates the inefficiency associated with asymmetric information.

Suggested Citation

  • Seon Tae Kim & Alessandro Marchesiani, 2020. "Market Intelligence Gathering and Money Demand," Working Papers 202004, University of Liverpool, Department of Economics.
    • Handle: RePEc:liv:livedp:202004
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    References listed on IDEAS

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    More about this item

    Keywords

    Money demand; asymmetric information; mechanism design;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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