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Search for a Monetary Propagation Mechanism

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  • Shi, Shouyong

Abstract

This paper examines a monetary propagation mechanism in an economy where exchnages in goods and labor markets involve costly search. It is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state and output when the money growth rate is already high. The model produces persistent, hump-shaped responses in employment and output to money growth shocks even when the shocks have no persistence. The model also generates desirable features on job vacancy, sales, inventory, and the velocity of money. All these features emerge here in an economy with perfectly flexible prices and wages.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 81 (1998)
Issue (Month): 2 (August)
Pages: 314-352

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Handle: RePEc:eee:jetheo:v:81:y:1998:i:2:p:314-352

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Web page: http://www.elsevier.com/locate/inca/622869

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References

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  7. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
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  12. Nobuhiro Kiyotaki & Randall Wright, 1989. "A contribution to the pure theory of money," Staff Report 123, Federal Reserve Bank of Minneapolis.
  13. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  14. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
  15. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  16. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Juster, F. Thomas & Stafford, Frank P., 1990. "The Allocation of Time: Empirical Findings, Behavioural Models, and Problems of Measurement," Working Paper Series 258, Research Institute of Industrial Economics.
  18. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  19. Diamond, Peter A, 1993. "Search, Sticky Prices, and Inflation," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 53-68, January.
  20. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  21. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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  23. Ohanian, Lee E & Stockman, Alan C & Kilian, Lutz, 1995. "The Effects of Real and Monetary Shocks in a Business Cycle Model with Some Sticky Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1209-34, November.
  24. Fuerst, Timothy S, 1995. "Monetary and Financial Interactions in the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1321-38, November.
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