Money aggregates, monetary transmissions, and the business cycle

Hong, Hao 2011. Money aggregates, monetary transmissions, and the business cycle. PhD Thesis, Cardiff University.

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Abstract

This thesis formulates, calibrates, and simulates Dynamic Stochastic General Equilibrium (DSGE) models to investigate the monetary transmission mechanism and the real impacts of monetary policy in a Cash-in-Advance (CIA) economy. The contributions of this thesis include: a resolution of the liquidity effect puzzle, which is a negative correlation between nominal interest rates and money growth rate, through the banking sector an examination of the real impacts of monetary policy, with various nominal interest rates, under a CIA framework an evaluation of a simple CIA economy and monetary banking models with business cycle facts and an emphasis of the contribution of a banking sector and a Stockman (1981) CIA constraint. The first chapter reviews a theoretical explanation of the liquidity effect puzzle. It includes the limited participation monetary shock from Lucas (1990) and market segmentation from Alvarez, Lucas and Webber (2001). It discusses the interaction between nominal and real economy with different monetary transmission channels (such as nominal wage contract, sticky price and monetary misperceptions). Chapter 2 resolves the liquidity effects puzzle with a banking sector. By generating liquidity effect on nominal interest rates, the model is able to replicate the economic fluctuations observed in the data. Chapters 3 and 4 explain the real impacts of monetary aggregates under a flexible price framework. The model is able to account for both the nominal interest rate behaviour and the business cycle facts without sticky price/wage and limited participation monetary shocks. Chapter 5 evaluates both simple and banking CIA models with business cycle facts, and emphasises the contribution of productive banks and Stockman's (1981) CIA constraint. It focuses on the interaction between nominal and real variables and concludes that by integrating banking production function and Stockman CIA constraint into CIA economy, the model is able to examine the certain business cycle facts. Chapter 6 concludes the contributions of the thesis.

Item Type:	Thesis (PhD)
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
ISBN:	9781303196348
Funders:	Julian Hodge Bank
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 23:30
URI:	https://orca.cardiff.ac.uk/id/eprint/54445

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