The risk premium hypothesis suggests that absolute changes in short-term interest rates will be larger if the unanticipated component of the Federal Reserve's weekly money supply announcement is positive. Statistical tests suggest, however, that the magnitude of interest rate changes are...

This paper extends a New Keynesian model to include roles for currency and depositsas competing sources of liquidity services demanded by households. It showsthat, both qualitatively and quantitatively, the Barnett critique applies: While a Divisiaaggregate of monetary services tracks the true...