Posted: March 10th, 2016
Under what conditions the liquidity effect, which would imply negative relationship between nominal interest rate and quantity of money in the economy, can be restored?
To the extent that money growth is positively serially correlated (assume ρm = 0.5), the nominal rate will necessarily increase in response to a monetary expansion. Under what conditions the liquidity effect, which would imply negative relationship between nominal interest rate and quantity of money in the economy, can be restored?
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