Abstract
The paper investigates whether credit and liquidity views of monetary policy transmission can be identified as separate elements of a system which has multiple cointegration vectors. Likelihood ratio analysis is used to determine the empirical validity of the commercial paper - Treasury bill spread and Johansen's rank condition tests identification restrictions for individual cointegration vectors. By imposing structural restrictions on a system of income, M2 and short-term interest rates, it is possible to generically identify individual cointegration vectors representing the credit and liquidity views, respectively, while a third vector is identified as a stationary relationship of short-term rates.
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