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The Source of Fluctuations in Money: Evidence From Trade Credit

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  • Valerie A. Ramey

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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  • Valerie A. Ramey, 1991. "The Source of Fluctuations in Money: Evidence From Trade Credit," NBER Working Papers 3756, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3756
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