The Macroeconomic Effects of Money Demand and Capital Liquidity : A Financial Accelerator Perspective

This paper establishes a dynamic stochastic general equilibrium (DSGE) model including secondary asset market and financial accelerator mechanism, to examine the short-term impact of money demand shock and capital liquidity shock on financial accelerator mechanism and then on the macro-economy. Our findings reveal that (1) the two shocks affect the price changes of bonds and capital, which in turn affect Fisher rate and capital return changes, then the changes of risk premium, this is a new channel for the two shocks to affect the macroeconomy; (2) The increase of total money demand caused by the increase of shoppers is stronger than that caused by the increase of expected tradability of capital; (3) From the perspective of conditional welfare level, under Taylor’s rule, households prefer the economy in the steady state of low equilibrium money demand, while it is the opposite under the strict money growth rule