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Identifying credit and liquidity effects using a rank condition

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  • R. D. Rossiter

Abstract

The paper investigates whether credit and liquidity views of monetary policy transmission can be identified as separate elements of a system which has multiple cointegration vectors. Likelihood ratio analysis is used to determine the empirical validity of the commercial paper - Treasury bill spread and Johansen's rank condition tests identification restrictions for individual cointegration vectors. By imposing structural restrictions on a system of income, M2 and short-term interest rates, it is possible to generically identify individual cointegration vectors representing the credit and liquidity views, respectively, while a third vector is identified as a stationary relationship of short-term rates.

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  • R. D. Rossiter, 1998. "Identifying credit and liquidity effects using a rank condition," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 469-475.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:5:p:469-475
    DOI: 10.1080/096031098332763
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    References listed on IDEAS

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