Title

Is There a Liquidity Effect? An Investigation using the Kalman Filter

Document Type

Article

Publication Date

12-1997

Publication Source

Journal of Policy Modeling

Abstract

We test for a liquidity effect by utilizing a Kalman filter and find that monetary innovations lowered interest rates in 51 out of the 120 quarters in our sample. This implies that the recent empirical consensus of no liquidity effect has resulted from the implicit assumption that monetary innovations always impact interest rates in the same direction, rather than from an absence of a liquidity effect in the data (JEL E4).

Inclusive pages

627-634

ISBN/ISSN

0161-8938

Comments

Permission documentation is on file.

Publisher

Elsevier

Volume

19

Issue

6

Peer Reviewed

yes