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Persistent Liquidity

Author

Listed:
  • Giulia Ghiani

    () (Politecnico di Milano)

  • Max Gillman

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

  • Michal Kejak

    () (CERGE-EI Prague)

Abstract

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.

Suggested Citation

  • Giulia Ghiani & Max Gillman & Michal Kejak, 2016. "Persistent Liquidity," Working Papers 1010, University of Missouri-St. Louis, Department of Economics.
    • Handle: RePEc:msl:workng:1010
    as

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    File URL: http://www.umsl.edu/econ/Research/WorkingPapers/UMSL_ECON_WP_1010.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    liquidity effect; money supply; inflation; cointegration; Markov-Switching VECM.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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