The Liquidity Effect of Money Shocks on Short-Term Interest Rates: Some International Evidence

Abstract

There has recently been resurgence of interest in the liquidity effect of money shocks on short-term interest rates. This paper empirically investigates the liquidity effect for some of the G-7 countries, using single equation and vector autoregressive systems estimation methods. Generalized autoregressive conditional heteroskedasticity (GARCH) is employed to better capture the behaviour of interest rates and money. Our results strongly indicate presence of the liquidity effect in most of the countries. [E40, E52]

^*An earlier version of this paper was presented at The 7th International Economic Convention, held in Pusan, Korea, August 21-22, 1996. We would like to thank Scott Fullwiler, Eun Kyung Kwon, Craig MacPhee, Kenneth Rebeck, James R. Schmidt, Hendrik van den Berg and two anonymous referees for helpful comments. All remaining shortcomings are, however, the sole responsibility of the authors.

^*An earlier version of this paper was presented at The 7th International Economic Convention, held in Pusan, Korea, August 21-22, 1996. We would like to thank Scott Fullwiler, Eun Kyung Kwon, Craig MacPhee, Kenneth Rebeck, James R. Schmidt, Hendrik van den Berg and two anonymous referees for helpful comments. All remaining shortcomings are, however, the sole responsibility of the authors.

Notes

^*An earlier version of this paper was presented at The 7th International Economic Convention, held in Pusan, Korea, August 21-22, 1996. We would like to thank Scott Fullwiler, Eun Kyung Kwon, Craig MacPhee, Kenneth Rebeck, James R. Schmidt, Hendrik van den Berg and two anonymous referees for helpful comments. All remaining shortcomings are, however, the sole responsibility of the authors.