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Title: Essays in money, liquidity and the wider economy
Author: Ellington, Michael
ISNI:       0000 0004 6059 7363
Awarding Body: University of Liverpool
Current Institution: University of Liverpool
Date of Award: 2016
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The thesis investigates the impact of money and liquidity for the wider economy. Chapter 1 dicusses the primary motivations of this work, introduces the content of the chapters, and briefly positions each essay. Following the brief overview, Chapter 2 uses tools from the classical theory of inflation for UK data. We provide an empirical comparison between broad money and Divisia money aggregates from both a domestic and global scale for two measures of UK inflation. We find that global liquidity yields inflationary pressures in the UK over and above the impact of domestic monetary conditions and spare capacity. Our non-linear models show that monetary effects are dependent on the state of domestic liquidity within the economy. Our empirical findings point against the immediate risk of strong inflationary pressures. In Chapter 3, we provide a comprehensive reduced-form and structural analysis of evolving macroeconomic dynamics using theoretically founded Divisia money aggregates and a time series spanning the Great Recession. We fit a Bayesian time-varying parameter VAR model with stochastic volatility to US and UK data from 1979 to 2015. Models using Divisia money growth rates pseudo-forecast GDP growth and inflation with a higher precision than simple-sum aggregates up to a 2-year horizon. Structural variance decompositions reveal that monetary policy shocks during the Great Recession contribute the lion's share of variation in real GDP growth and inflation volatility. Chapter 4 examines the dynamic impact of liquidity shocks resonating in stock and housing markets on real GDP growth. We fit a Bayesian time-varying parameter VAR model with stochastic volatility to US data from 1970 to 2014. GDP becomes highly sensitive to house market liquidity shocks as disruptions in the sector start to emerge, yet more resilient to stock market liquidity shocks throughout time. We provide substantial evidence in favour of asymmetric responses of GDP growth both across the business cycle, and among business cycle troughs. Stock and house market liquidity shocks, on average, explain 15% and 36% of the variation in real GDP growth during the Great Recession respectively. Finally, Chapter 5 provides concluding comments and suggestions for future research.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral