Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks

The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variations. The role of the shocks varies across subperiods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks because these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan-like money demand means that money and credit shocks cause greater velocity variation, the higher is the nominal interest rate.     

Financial Innovations,Money Demand,and the Welfare Cost of Inflation

In the 1990s, the empirical relationship between money demand and interest rates began to fall apart. We analyze to what extent financial innovations can explain this breakdown. For this purpose, we construct a microfounded monetary model with a money market that provides insurance against liquidity shocks by offering short‐term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that the introduction of the sweep technology at the beginning of the 1990s, which improved access to money markets, can explain the behavior of money demand very well. Furthermore, by allowing a more efficient allocation of money, the welfare cost of inflation decreased substantially.     

Precautionary Balances and the Velocity of Circulation of Money

The low velocity of circulation of money implies that households hold more money than they normally spend. This behavior is explained if households face uncertain expenditure needs, so that they have a precautionary motive for holding money. We investigate this motive in a search model where households are subject to preference shocks. The model predicts that velocity is not only low but also interest elastic. The model closely fits U.S. data on velocity and interest rates (1892–2004). The empirical analysis reveals a dramatic reduction in precautionary balances toward the end of our sample, which is important for policy issues.     

Monetary Policy,Trend Inflation,and Unemployment Volatility

The literature has long agreed that the DMP model (after Diamond 1982, Mortensen 1982, Pissarides 1985) with search and matching frictions in the labor market can deliver large volatilities in labor market quantities, consistent with empirical data, only if there is at least some wage stickiness. I show, however, that the model can deliver nontrivial volatilities without wage stickiness, as long as it has price dispersion and nonzero long‐run inflation rates. I find that by keeping inflation at a positive rate, monetary policy may be accountable for the large standard deviations observed on labor market variables. In addition, the Shimer (2005) puzzle disappears under monetary policy shocks.     

Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities

We study the real long-run effects of the structural stance of monetary policy and of inflation, in the context of a monetary growth model where R&D is complemented with physical capital accumulation. We look into the effects on a set of real macroeconomic variables that have been of interest to policymakers—the economic growth rate, real interest rate, physical investment rate, capital-to-labor ratio, R&D intensity, and velocity of money. These variables have been previously analyzed from the perspective of different, separated, strands of the theoretical and empirical literature. Additionally, we analyze the long-run relationship between inflation and both the effectiveness of real industrial-policy shocks and the market structure, assessed namely by average firm size. We present novel cross-country evidence on the empirical relationship between the latter and long-run inflation.     

Habit formation and the persistence of monetary shocks

The dynamic effects and relative importance of monetary shocks in the US business cycle are studied using a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs. The model is estimated via maximum likelihood using data on output, real money balances, and the nominal interest rate. Econometric results indicate that the model has a strong internal propagation mechanism that can explain the persistent and hump-shaped response of US output and consumption to monetary shocks.     

Safe Assets as Commodity Money

This paper presents a model in which safe assets are systemic because they are the medium of exchange in risky assets. It connects the literature from banking and finance on safe assets to the monetary literature on alternative monetary systems involving commodity money, interest bearing money, and private money creation. Because safe assets have intrinsic value, changes in their supply lead to changes in market efficiency. Additionally, because safe assets are costly to produce, there is overproduction of safe assets relative to the social optimum. When the model is calibrated to plausible liquidity premiums the resulting inefficiencies are not large.     

U.S. Banking Sector Risk in an Era of Regulatory Change: A Bivariate GARCH Approach

This paper assesses the impact of regulatory change on the risk and returns of the U.S. banking industry. The impact of five major regulatory changes on banking sector risk was assessed using daily data for eighteen major U.S. regional banks, money center banks and savings and loan type depository institutions. Risk in this case was proxied via the use of an M-GARCH model which generates time dependent conditional beta estimates. The evidence obtained suggests that the impact of deregulation and reregulation on banking sector risk is case specific. Further, the results obtained show that the market model incorporating dummy variables, which has proven so popular amongst existing studies, discards important information about the variability of beta which the time varying conditional betas capture.     

Does bank lending affect output? Evidence from the U.S. states

This paper uses a panel of state-level data to test whether changes in bank loan supply affect output. Since the U.S. states are small open economies with fixed exchange rates, state-specific shocks to money demand are automatically accommodated, leading to changes in lending if banks rely on deposits as a source of funding. Using these shocks as an instrumental variable, I find that shocks to money demand have large and statistically significant effects on the supply of bank loans, but loans have small, often negative and statistically insignificant effects on output.     

Aggregate uncertainty, money and banking

This paper addresses the problem of monitoring the monitor in a model of money and banking with private information and aggregate uncertainty. There is no need to monitor a bank if it requires loans to be repaid partly with money. A market arises at the repayment stage and generates information-revealing prices that perfectly discipline the bank. This mechanism also applies when there exist multiple banks. With multiple banks, competition of private monies improves welfare. A prohibition on private money issue not only eliminates money competition but also triggers free-rider problems among banks, which is detrimental to welfare.     

Residential Fixed Investment and the Macroeconomy: Has Deregulation Altered Key Relationships?

Financial deregulation in 1980 potentially altered key relationships between residential fixed investment (RFI) and key macroeconomic variables. This study uses a vector error correction model to examine relationships between RFI, money, interest rates, and output in pre-deregulation and post-deregulation sub-periods. Results indicate short-term interest rate shocks account for much of RFI variability pre-deregulation. After deregulation, long-term FHA interest rate shocks better account for RFI movements. Results also show that, in the post-deregulation era, RFI shocks have increased predictive power for overall gross domestic product movements. Thus, the study finds altered relationships between RFI and macroeconomic variables.     

Time Aggregation and the Relationship between Inflation and Money Growth

Using panel data for 99 countries, we confirm that the measured elasticity of prices with respect to money is higher, and closer to unity, the higher is money growth and the longer the time horizon over which the data are averaged. We propose two explanations. In one, the true model of inflation involves a lagged response to money growth. In the other, there is negative correlation between shocks to inflation and money growth. Our empirical results can be explained if high–money‐growth countries have (i) shorter lags or (ii) less negative correlation, when compared to countries with low money growth.     

The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions

We develop a New Keynesian model with search and matching frictions in the labor market. We show that the model generates counterfactual labor market dynamics. In particular, it fails to generate the negative correlation between vacancies and unemployment in the data, i.e., the Beveridge curve. Introducing real wage rigidity leads to a negative correlation, and increases the magnitude of labor market flows to more realistic values. However, inflation dynamics are only weakly affected by real wage rigidity. The reason is that labor market frictions give rise to long-run employment relationships. The measure of real marginal costs that is relevant for inflation in the Phillips curve contains a present value component that varies independently of the real wage.     

Understanding the Recent Growth in Consumer Loans and Credit Cards in Emerging Markets: Evidence from Turkey

In recent years, the surge in household indebtedness to historical heights has become a significant concern for developed economies. A similar trend has been witnessed in emerging market countries including Turkey. Our objective is to help further understand the dynamics of the recent growth in consumer loans and credit cards (CLCC) in Turkey. For this purpose, we investigate the long-term equilibrating relationships and short-term deviations from the equilibrium, and explore the determinants, directions, and strengths of causality relationships between CLCC and the selected macroeconomic variables, and analyze the dynamic interactions among the variables in the post-sample period by analyzing how CLCC responds to the shocks given to other macroeconomic variables and the contribution of each variable on the forecast variability of CLCC. We use monthly data for the period of January 2004—December 2013 of seven macroeconomic variables of money supply, interest rate, income, consumer confidence, inflation, stock market, and consumer goods imports. On empirical findings, we make suggestions about which policy tools should be used to influence, and if necessary to manage, the growth in CLCC.     

我国股票市场和房地产市场对货币流速的影响

探讨股市和房市对货币流速的效应是对货币流速影响因素进行实证研究的一个方向。实证结果表明,我国股市、房市变量与狭义货币流速、广义货币流速均存在长期均衡关系,且与货币流速负相关,狭义货币流速主要受股市影响,广义货币流速主要受房市影响。股市和房市导致货币流速下降的原因,有助于解释我国的一些经济现象,同时也提醒我们应进一步规范股市和房市的发展,央行制定货币政策时应该考虑股市和房市对货币需求的影响,要采取预防性货币政策,保持经济与金融的稳健运行。     

Downward wage rigidity and business cycle asymmetries

The growth rates of wages, unemployment and output of a number of OECD countries have a strongly skewed distribution. In this paper we analyze to what extent downward wage rigidities can explain these empirical business cycle asymmetries. To this aim, we introduce asymmetric wage adjustment costs in a New-Keynesian DSGE model with search and matching frictions in the labor market. Increasing wages is less costly than cutting them. It follows that wages increase relatively fast and thus limit vacancy posting and employment creation, but they decline more slowly, leading to a strong reduction in vacancies and employment. The presence of downward wage rigidities strongly improves the fit of the model to the observed skewness of labor market variables and the relative length of expansions and contractions in the output and the employment cycles. The asymmetry also explains the differing transmission of positive and negative monetary policy shocks from wages to inflation.     

Money stock revisions and unanticipated money growth

An important ‘empirical regularity’ is the strong positive effect of money shocks on output and employment. One strand of business cycle theory relates this finding to temporary confusions between absolute and relative price changes. These models predict positive output effects of unperceived monetary movements, but the quantitative importance of unperceived shifts in nominal aggregates is subject to question. Another strand of theory, based on long-term nominal contracts and analogous price-setting institutions, generates output effects from unanticipated, but not necessarily contemporaneously unperceived, money shocks. However, the real effects of unpredicted, but contemporaneously understood, monetary changes are not obviously consistent with efficient institutional arrangements. The present paper provides some empirical evidence on the two types of theories by analyzing the output effects associated with revisions in the money stock data, where the revisions are interpreted as components of unperceived monetary movements. The revisions turn out to have no significant explanatory power for output. Previous findings that innovations from an estimated money growth equation have a significant output effect remain intact when the revisions are included as separate explanatory variables. Overall, the study provides a small amount of evidence against the special role of unperceived, as opposed to unanticipated, money movements as a determinant of business fluctuations.     

Nonlinear Effects of Mortgage Spreads Over the Business Cycle

This paper provides robust evidence for the nonlinear effects of mortgage spread shocks during recessions and expansions in the United States. Estimating a smooth-transition vector autoregression (STVAR) model, we show that mortgage spread shocks hitting in a recessionary phase create significantly deeper and more protracted declines in consumption and housing market variables. In addition, we provide evidence that these mortgage spread shocks could be largely interpreted as credit supply shocks in the mortgage market. Our empirical results imply that unconventional monetary policy, such as the Federal Reserve's mortgage-backed security purchase program, would be a more effective tool for stabilizing the economy during recessions than in expansions.     

Housing, consumption and monetary policy: How different are the US and the euro area?

This paper provides a systematic empirical analysis of the role of the housing market in the macroeconomy in the US and the euro area. First, it establishes some stylised facts concerning key variables in the housing market on the two sides of the Atlantic, such as real house prices, residential investment and mortgage debt. It then presents evidence from Structural Vector Autoregressions (SVAR) by focusing on the effects of monetary policy, credit supply and housing demand shocks on the housing market and the broader economy. The analysis shows that similarities outweigh differences as far as the housing market is concerned. The empirical evidence suggests a stronger role for housing in the transmission of monetary policy shocks in the US. The evidence is less clear-cut for housing demand shocks. Finally, credit supply shocks seem to matter more in the euro area.