Money Still MattersAEI Panel

March 22, 2013David Beckworth, Western Kentucky

University

Money Lessons Learned

• Traditional View of Money too NarrowoRetail Money Assets• Cash, checking accounts, saving and time deposits, money market accounts

o Institutional Money Assets• Treasury bills, MBS, commercial paper, repos

Money Supply

Money Supply

Money Supply

Money Supply

Money Demand

Money Demand

Long-Term Interest Rates

Recap• Supply of Safe Assets Decreased• Demand for Safe Assets

Increased• Safe Asset Shortage • Transaction Asset or Money

Shortage• Shortfall of Total Dollar Spending

Role for Fed Policy• Return Total Dollar Spending to

Pre-crisis Growth PathoDemand for financial intermediation

will increaseoPrivate safe asset production will

increase• Don’t Target Money Supply

oEven though money still matters…oStable NGDP growth implies stable

monetary conditions

Role for Fed Policy

Vector Autoregression1968:Q4-2012:Q4

Quarters After Positive Shock to Expected NGDP Growth Rate