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ACCOUNTING FOR THE RELATIONSHIP BETWEEN MONEY AND INTEREST RATES

Published online by Cambridge University Press:  13 June 2006

MAGNUS JONSSON  and
PAUL KLEIN
MAGNUS JONSSON
Affiliation:
Sveriges Riksbank
PAUL KLEIN
Affiliation:
University of Western Ontario
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Abstract

In time-series from the United States, the relationship between the money to income ratio and the nominal interest rate is a negative and stable one. In Swedish data, there is no such stable relationship. In this paper, we argue that this difference can be explained by the differences in the shock processes that have hit the two countries. Using a dynamic general equilibrium model driven by shock processes estimated to fit the two countries, we find that we can account for the main properties of the data remarkably well.

Keywords

MoneyNominal Interest RatesSimulated Method of Moments
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 10 , Issue 4 , September 2006 , pp. 545 - 571
Copyright
© 2006 Cambridge University Press

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