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Monetary aggregates and the business cycle

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  • Sustek, Roman

Abstract

A monetary aggregate consisting predominantly of zero-maturity deposits, called MZM, tends to systematically lead output in the US business cycle. Such fluctuations are observed both before and after the 1979 monetary policy change. Similar dynamics are obtained in a model with multi-stage production and purchase-size heterogeneity when agents optimally choose their mix of cash, checkable, and time deposits used in transactions. The causality in the model runs from real activity to money, rather than the other way around. Although the monetary base is endogenous, through a Taylor-type rule, the lead in MZM is primarily driven by deposit creation.

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  • Sustek, Roman, 2010. "Monetary aggregates and the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 451-465, May.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:4:p:451-465
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    4. Manjong Lee & Sung Guan Yun, 2014. "Composition of Portfolio and Cost of Inflation," Discussion Paper Series 1403, Institute of Economic Research, Korea University.
    5. Wilson, Matthew S., 2020. "A real business cycle model with money as a sunspot variable," Journal of Economics and Business, Elsevier, vol. 109(C).

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    More about this item

    Keywords

    Monetary aggregates Business cycle General equilibrium;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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