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The Opportunity Cost of Money and the Relevance of Monetary Policy

Author

Listed:
  • Joseph H. Haslag

    (Department of Economics, University of Missouri-Columbia)

  • Dong Ho Kang

    (Center for Macroeconomic Research, University of Cologne, Germany)

Abstract
Over the past decade, researchers have identified monetary policy surprises using highfrequency movements in futures contract prices. Based on this identification strategy, the evidence suggests that contractionary monetary policy surprises are significantly related to decreases in output and the price level. In other words, monetary policy is relevant. With more than a decade of data with nominal rates at or near the zero lower bound and interest on reserves, the open question is whether this relevance depends on the opportunity cost of holding money. We test this hypothesis, reporting impulse responses that are relevant when opportunity costs are greater than zero, but irrelevant when opportunity costs are close to zero. Hence, we conclude that monetary policy is conditionally relevant.

Suggested Citation

  • Joseph H. Haslag & Dong Ho Kang, 2024. "The Opportunity Cost of Money and the Relevance of Monetary Policy," Working Papers 2410, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:2410
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    More about this item

    Keywords

    high-frequency; monetary policy surprises; interest on reserves; conditional relevanc;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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