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Multiscale Analysis of the Liquidity Effect

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  • Antonis Michis

    (Central Bank of Cyprus)

Abstract

This study examines the existence of a liquidity effect in Mexico over different time scales. This analysis draws from the liquidity preference framework, an approach to interest rate determination, and uses wavelet multiscale analysis in the context of a standardised regression model. The results suggest that, in short-term cycles, interest rates are influenced primarily by changes in the money supply (i.e., the liquidity effect). In medium- and long-term cycles, the liquidity effect becomes less important and interest rates are found to be more sensitive to income and price effects.

Suggested Citation

  • Antonis Michis, 2011. "Multiscale Analysis of the Liquidity Effect," Working Papers 2011-5, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2011-5
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    File URL: https://www.centralbank.cy/images/media/pdf/NPWPE_No5_102011.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Interest rates; liquidity effect; money supply; wavelets.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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