Arbeitspapier
Limited commitment and the demand for money in the UK
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.
- Language
-
Englisch
- Bibliographic citation
-
Series: Working Paper ; No. 199
- Classification
-
Wirtschaft
- Subject
-
money demand
money markets
financial intermediation
limited commitment
- Event
-
Geistige Schöpfung
- (who)
-
Berentsen, Aleksander
Huber, Samuel
Marchesiani, Alessandro
- Event
-
Veröffentlichung
- (who)
-
University of Zurich, Department of Economics
- (where)
-
Zurich
- (when)
-
2015
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Berentsen, Aleksander
- Huber, Samuel
- Marchesiani, Alessandro
- University of Zurich, Department of Economics
Time of origin
- 2015