The liquidity effect: Evidence from the U.S

Using a simple cointegrated vector autoregression (VAR) I find strong evidence for a liquidity effect at policy relevant time horizons with a broad monetary aggregate. The liquidity effect is present for both nominal and real interest rates. ► Existing evidence of a liquidity effect in the U.S. is s...

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Bibliographic Details
Published in:Economics letters 2012-10, Vol.117 (1), p.315-317
Main Author: Crowder, William J.
Format: Article
Language:English
Subjects:
Cointegration
Federal Reserve monetary policy
Interest rates
Liquidity
Liquidity effect
Monetary aggregates
Monetary policy
Regression analysis
Studies
Transitory shocks
U.S.A
Vector-autoregressive models
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Summary:Using a simple cointegrated vector autoregression (VAR) I find strong evidence for a liquidity effect at policy relevant time horizons with a broad monetary aggregate. The liquidity effect is present for both nominal and real interest rates. ► Existing evidence of a liquidity effect in the U.S. is sparse. ► This study uses a simple and uncontroversial modeling strategy. ► The results find strong evidence in favor of a liquidity effect.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2012.05.039