Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework

48 Pages Posted: 18 Aug 2008 Last revised: 5 Sep 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

David Lopez-Salido

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: August 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 modeled. 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 behavior 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.

Suggested Citation

Canzoneri, Matthew B. and Cumby, Robert E. and Diba, Bezhad and Lopez-Salido, David, Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework (August 2008). NBER Working Paper No. w14244. Available at SSRN: https://ssrn.com/abstract=1231692

Matthew B. Canzoneri

Georgetown University ( email )

Washington, DC 20057
United States
202-687-5911 (Phone)
202-687-6102 (Fax)

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

580 Intercultural Center
Washington, DC 20057
United States
202-687-2990 (Phone)
202-687-6102 (Fax)

National Bureau of Economic Research (NBER)

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Bezhad Diba

Georgetown University ( email )

Washington, DC 20057
United States
2026875682 (Phone)
2026876102 (Fax)

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

David Lopez-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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