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Monetary shocks in a spatial overlapping generations model

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  • Anthonisen, Niels
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    Abstract

    In a classic paper, "The Lag in Effect of Monetary Policy," Friedman (1961) describes an expansionary open market operation as diffusing across the economy, pulling the price in one market out of line with the price in the next market as it spreads. The objective of this paper is to build a model where this process is made explicit, specifically, where money affects real economic activity by altering relative prices of goods as it spills from one market into the next. Thus the paper superimposes a monetary overlapping generations model on a simple abstract spatial structure--specifically, a graph--and then studies the effect of an expansionary monetary policy.

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    Bibliographic Info

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

    Volume (Year): 34 (2010)
    Issue (Month): 12 (December)
    Pages: 2461-2484

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    Handle: RePEc:eee:dyncon:v:34:y:2010:i:12:p:2461-2484

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

    Related research

    Keywords: Spatial overlapping generations model Underlying graph Monetary shock;

    References

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    1. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    2. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.
    3. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
    4. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    5. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69, pages 447.
    6. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
    7. Williamson, Stephen D., 2008. "Monetary policy and distribution," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1038-1053, September.
    8. Shouyong Shi, 2006. "Viewpoint: A microfoundation of monetary economics," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 643-688, August.
    9. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    10. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
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    Cited by:
    1. Anthonisen, Niels, 2013. "On the long-run relationship between inflation and output in a spatial overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2500-2524.

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