Limited commitment and the demand for money in the UK

Arbeitspapier

In the United Kingdom, money demand deviates from the convex relationship suggested by monetary theory. Limited commitment of borrowers via banks can explain this observation. Our finding is based on a microfounded monetary model, where a money market provides insurance against idiosyncratic liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.K. data and show that limited commitment significantly improves the fit between the theoretical money demand function and the data. Limited commitment can also explain the "liquidity trap"; i.e., why the ratio of credit to M1 is currently so low, despite the fact that nominal interest rates are at their lowest recorded levels.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 199

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: money demand ; money markets ; financial intermediation ; limited commitment

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Berentsen, Aleksander ; Huber, Samuel ; Marchesiani, Alessandro
• Ereignis: Veröffentlichung
• (wer): University of Zurich, Department of Economics
• (wo): Zurich
• (wann): 2015

Weitere Informationen

• Handle: http://hdl.handle.net/10419/126589
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ