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Inside money, credit, and investment

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  • Dressler, Scott J.
  • Li, Victor E.

Abstract

This paper presents a monetary explanation for several business-cycle facts: (i) household and business investment are procyclical, (ii) business investment lags household investment, (iii) household investment is positively correlated with M1, and (iv) household credit outstanding is positively correlated with and more volatile than household investment. We extend a standard, dynamic general equilibrium model to include financial intermediaries, credit-producing firms, and inside (bank-created) money. The transmission of monetary shocks facilitated by credit and inside money creation in the model is able to reconcile these real and monetary observations regarding the cyclical behavior of investment.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 4 (April)
Pages: 970-984

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:4:p:970-984

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Inside money Credit creation Durable consumption Business cycles;

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Citations

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Cited by:
  1. Carlos Garriga & Finn E. Kydland & Roman Šustek, 2013. "Mortgages and Monetary Policy," Discussion Papers 1306, Centre for Macroeconomics (CFM).
  2. Roman Sustek & Peter Rupert & Finn Kydland, 2012. "Housing Dynamics," 2012 Meeting Papers 315, Society for Economic Dynamics.
  3. Totzek, Alexander, 2009. "Banks and early deposit withdrawals in a new Keynesian framework," Economics Working Papers 2009,08, Christian-Albrechts-University of Kiel, Department of Economics.
  4. Finn E. Kydland & Peter Rupert & Roman Sustek, 2014. "Housing Dynamics over the Business Cycle," Discussion Papers 1423, Centre for Macroeconomics (CFM).
  5. Victor E. Li, 2012. "Monetary Transmission and the Search for Liquidity," Villanova School of Business Department of Economics and Statistics Working Paper Series 19, Villanova School of Business Department of Economics and Statistics.

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