Abstract
Using US post-war data we find evidence of cointegration between the short term interest rate, inflation, unemployment and money supply growth. Rolling trace tests add robustness by showing lack of cointegration when money or one of the other variables are omitted.
Signi cant non-linear dynamics are found with three endogenous Markov-switching regimes, interpreted as contractions, expansions, and "unconventional" periods. We interpret the results in terms of a persistent liquidity effect with distinct dynamics over time as regimes shift across normal business cycle fluctuations and rare events.