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Financial Constraints, Aggregate Supply, and the Monetary Transmission Mechanism

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Author Info
Delli Gatti, Domenico
Gallegati, Mauro

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Abstract

The authors derive two propositions identifying the conditions for monetary policy effectiveness due to the interaction of real and financial markets. The first proposition shows that, in a regime of endogenous money, monetary policy is effective even if policy moves are anticipated because changes in the interest rate impinge upon long-run output. The second proposition shows that in a regime of exogenous money--in which the Central Bank controls base money and structural parameters affecting the behavior of banks--monetary policy affects output if its impact on money is different from its impact on credit. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Publisher Info
Article provided by Blackwell Publishing in its journal The Manchester School of Economic & Social Studies.

Volume (Year): 65 (1997)
Issue (Month): 2 (March)
Pages: 101-26
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Handle: RePEc:bla:manch2:v:65:y:1997:i:2:p:101-26

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  1. Roberto Tamborini & Riccardo Fiorentini, 2001. "The monetary transmission mechanism in Italy: the credit channel and a missing ring," Department of Economics Working Papers 0101, Department of Economics, University of Trento, Italia. [Downloadable!]
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