Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
967148 | Journal of Monetary Economics | 2009 | 12 Pages |
Abstract
A forward-looking model of the demand for money based on heterogeneous and sluggish-portfolio adjustment can simultaneously account for the low short-run and high long-run semi-elasticities reported in the literature. The parameter estimates from the model for the short-run and long-run interest semi-elasticities are 1.04 and 13.16, respectively. A simulated version of the model suggests that the Great Moderation can be partially attributed to financial innovations in the late 1970s. When moving toward a more flexible portfolio, the model can account for almost one-third of the observed decline in the volatilities of output, consumption, and investment.
Related Topics
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Authors
Pablo A. Guerron-Quintana,