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 SupplyoEven 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