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Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes

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  • Kenneth J. Matheny

    (Department of Economics, Krannert Graduate School of Management, Purdue University, West Lafayette, IN 47907, USA)

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    Abstract

    To a greater extent than is often stressed in existing literature, preference assumptions affect responses to money shocks in equilibrium monetary models. Temporary money shocks can have persistent real effects if the marginal utility of leisure is a decreasing function of consumption, where leisure is measured as time endowment less market labor effort, and consumption refers to market produced goods. This condition is an empirically supported implication of home production models. Though not theoretically necessary for supporting the existence of short run real effects, the presence of distortionary taxes and endogenous productivity can have significant quantitative effects on responses to temporary money supply shocks.

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    Bibliographic Info

    Article provided by Springer in its journal Economic Theory.

    Volume (Year): 11 (1998)
    Issue (Month): 2 ()
    Pages: 379-402

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    Handle: RePEc:spr:joecth:v:11:y:1998:i:2:p:379-402

    Note: Received: August 21, 1996; revised version: February 3, 1997
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    Cited by:
    1. Stephane Auray & Fabrice Collard & Patrick Feve, 2005. "Habit Persistence, Money Growth Rule and Real Indeterminacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 48-67, January.
    2. Andreas Schabert, . "Central bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Working Papers 2003_5, Business School - Economics, University of Glasgow, revised Jan 2003.
    3. Benhabib, J. & Farmer, R.E.A., 1999. "The Monetary Transmission Mechanism," Economics Working Papers eco99/35, European University Institute.
    4. repec:fth:starer:9613 is not listed on IDEAS
    5. Andreas Schabert & Christian Stoltenberg, 2005. "Money Demand and Macroeconomic Stability Revisited," SFB 649 Discussion Papers SFB649DP2005-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Aug 2005.
    6. Jun-ichi Itaya & Kazuo Mino, 2005. "Technology, Preference Structure, and the Growth Effect of Money Supply," Discussion Papers in Economics and Business 05-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    7. De Fiore, Fiorella, 2000. "Can indeterminacy explain the short-run non-neutrality of money?," Working Paper Series 0032, European Central Bank.
    8. Ilaski Barañano & M. Paz Moral, 2013. "Consumption–Leisure Trade-Offs And Persistency In Business Cycles," Bulletin of Economic Research, Wiley Blackwell, vol. 65(3), pages 280-298, 07.
    9. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Tinbergen Institute Discussion Papers 06-025/2, Tinbergen Institute.

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