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Title:Money, prices and liquidity effects: Separating demand from supply PDF Logo
Authors:Chadha, Jagjit S.
Corrado, Luisa
Sun, Qi
Issue Date:2008
Series/Report no.:School of Economics discussion papers 08,17
Abstract:In the canonical monetary policy model, money is endogenous to the optimal path for interest rates and output. But when liquidity provision by banks dominates the demand for transactions money from the real economy, money is likely to contain information for future output and inflation because of its impact on financial spreads. And so we decompose broad money into primitive demand and supply shocks. We find that supply shocks have dominated the time series in both the UK and the US in the short to medium term. We further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation.
Subjects:money
prices
Bayesian VAR identification
sign restrictions
JEL:E32
F32
F41
Document Type:Working Paper
Appears in Collections:School of Economics Discussion Papers, University of Kent

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