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Financial Innovations, Money Demand, and the Welfare Cost of Inflation

Berentsen, Aleksander and Huber, Samuel and Marchesiani, Alessandro. (2015) Financial Innovations, Money Demand, and the Welfare Cost of Inflation. Journal of Money, Credit and Banking, 47 (2). pp. 223-261.

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Official URL: http://edoc.unibas.ch/39854/

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Abstract

In the 1990s, the empirical relation between money demand and interest rates began to fall apart. We analyze to what extent improved access to money markets can explain this break-down. For this purpose, we construct a microfounded monetary model with a money market, which provides insurance against liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that improved access to money markets can explain the behavior of money demand very well. Furthermore, we show that, by allocating money more efficiently, better access to money markets decrease the welfare cost of inflation substantially.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen)
UniBasel Contributors:Berentsen, Aleksander and Huber, Samuel
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Wiley
ISSN:1538-4616
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:30 Jun 2016 11:00
Deposited On:17 May 2016 08:33

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