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Re-Examining The Implications Of The New Consensus: Endogenous Money And Taylor Rules In A Simple Neoclassical Macro Model

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  • Peter Docherty

Abstract

This paper re-examines the impact of endogenous money in a neoclassical model with interest-sensitive expenditures. It first outlines a benchmark model with exogenous money and the usual full employment and money growth-determined inflation results. It then replaces exogenous money with endogenous money, which is shown to generate model indeterminacy. Two methods of resolving this indeterminacy are then explored: money illusion and a Taylor rule for monetary policy, a key feature of new consensus models. The paper concludes that endogenous money has negative implications for the behaviour and interpretation of neoclassical and new consensus models. Copyright � 2008 The Author. Journal compilation � 2008 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 60 (2009)
Issue (Month): 3 (07)
Pages: 495-524

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Handle: RePEc:bla:metroe:v:60:y:2009:i:3:p:495-524

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Cited by:
  1. Emiliano Brancaccio & Giuseppe Fontana, 2013. "'Solvency rule' versus 'Taylor rule': an alternative interpretation of the relation between monetary policy and the economic crisis," Cambridge Journal of Economics, Oxford University Press, vol. 37(1), pages 17-33.

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