Money, Credit, and the Liquidity Effect

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The Wharton School::Wharton Undergraduate Research::Wharton Research Scholars
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Economics
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monetary policy, macroeconomics, public policy, credit, money, liquidity
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2024
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Pawlowski, Nicholas
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Jermann, Urban
Abstract

The following paper explores the interaction between money, credit, and the liquidity effect of monetary policy. A novel dynamic, stochastic, general equilibrium (DSGE) model is used to capture this interaction. The model is fitted to data collected in the United States from 1959 to 2023, and conclusions are made about the evolution of the liquidity effect during this period. The optimal policy choice for money supply changes is analyzed within the context of the availability of credit for both households and firms. It is found that the money supply growth rate that maximizes production increases with the credit availability of consumers but decreases with the credit availability of producers.

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2024
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