Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework

49 Pages Posted: 12 Jun 2008

See all articles by Matthew B. Canzoneri

Matthew B. Canzoneri

Georgetown University

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Behzad Diba

Georgetown University

J. David López-Salido

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: May 2008

Abstract

Woodford (2003) describes a popular class of neo-Wicksellian models in which monetary policy is characterized by an interest-rate rule, and the money market and financial institutions are typically not even modelled. Critics contend that these models are incomplete and unsuitable for monetary-policy evaluation. Our Banks and Bonds model starts with a standard neo-Wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks. The Banks and Bonds model gives a more complete description of the economy, but the neo-Wicksellian model has the virtue of simplicity. Our purpose here is to see if the neo-Wicksellian model gives a reasonably accurate account of macroeconomic behaviour in the more complete Banks and Bonds model. We do this by comparing the models' second moments, variance decompositions and impulse response functions. We also study the role of monetary aggregates and velocity in predicting inflation in the two models.

Keywords: Banks, Monetary Aggregates

JEL Classification: E51, E52

Suggested Citation

Canzoneri, Matthew B. and Cumby, Robert E. and Diba, Bezhad and López-Salido, J. David, Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework (May 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1143176

Matthew B. Canzoneri (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States
202-687-5911 (Phone)
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Robert E. Cumby

Georgetown University - Department of Economics ( email )

580 Intercultural Center
Washington, DC 20057
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202-687-6102 (Fax)

National Bureau of Economic Research (NBER)

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Bezhad Diba

Georgetown University ( email )

Washington, DC 20057
United States
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2026876102 (Fax)

HOME PAGE: http://econ.georgetown.edu/

J. David López-Salido

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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