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Persistent Liquidity

Listed author(s):
  • Giulia Ghiani

    ()

    (Politecnico di Milano)

  • Max Gillman

    ()

    (Department of Economics, University of Missouri-St. Louis)

  • Michal Kejak

    ()

    (CERGE-EI Prague)

Using US post-war data we find evidence of cointegration between the short term interest rate, inflation, unemployment and money supply growth. Rolling trace tests add robustness by showing lack of cointegration when money or one of the other variables are omitted. Signi cant non-linear dynamics are found with three endogenous Markov-switching regimes, interpreted as contractions, expansions, and "unconventional" periods. We interpret the results in terms of a persistent liquidity effect with distinct dynamics over time as regimes shift across normal business cycle fluctuations and rare events.

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File URL: http://www.umsl.edu/~econ/Research/msl/workng/GillmanPersistentLiquidityPaper.pdf
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Paper provided by University of Missouri-St. Louis, Department of Economics in its series Working Papers with number 1010.

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Length: 20 pages
Date of creation: Jan 2016
Handle: RePEc:msl:workng:1010
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