This paper studies the dynamic propagation of a liquidity shockthrough two real propagation channels: dynamiccomplementarities and time-varying capitalutilization. The findings for an economywith intertemporal externalities are: (1) An otherwise transient liquidityshock will have real effects on output for several years; (2) time-varyingcapital utilization strongly augments this propagation; (3) the realeffects of monetary shocks last longer when external productivitydepreciates faster; and (4) nominal prices respond more sluggishly to achange in the money supply when there isa strong real propagation channel.
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Volume (Year): 3 (1999) Issue (Month): 03 (September) Pages: 368-383 Download reference. The following formats are available: HTML
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