Is There a Liquidity Effect? An Investigation using the Kalman Filter
Journal of Policy Modeling
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).
Copyright © 1997, Elsevier
Boyd, Roy and Caporale, Tony, "Is There a Liquidity Effect? An Investigation using the Kalman Filter" (1997). Economics and Finance Faculty Publications. 50.