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Financial Innovations, Money Demand and the Welfare Cost of Inflation

Research Project
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01.12.2013
 - 31.12.2027

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.

Collaborations & Cooperations

2015 - Participation or Organization of Collaborations within own University
Huber, Samuel, University of Basel, Research cooperation
2015 - Participation or Organization of Collaborations on an international level
Marchesiani, Alessandro, University of Minho, Research cooperation

Publications

Berentsen, Aleksander, 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. Available at: https://doi.org/10.1111/jmcb.12219.

URLs
URLs

Members (3)

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Aleksander Berentsen

Principal Investigator
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Alessandro Marchesiani

Project Member
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Samuel Huber

Project Member