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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. Itaya, Jun-Ichi & Mino, Kazuo, 2007. "Technology, Preference Structure, And The Growth Effect Of Money Supply," Macroeconomic Dynamics, Cambridge University Press, vol. 11(05), pages 589-612, November.
    2. 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.
    3. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Tinbergen Institute Discussion Papers 06-025/2, Tinbergen Institute.
    4. repec:fth:starer:9613 is not listed on IDEAS
    5. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Tinbergen Institute Discussion Papers 06-025/2, Tinbergen Institute.
    6. Jess Benhabib & Roger Farmer, 1998. "The Monetary Transmission Mechanism," Levine's Working Paper Archive 2055, David K. Levine.
    7. 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.
    8. De Fiore, Fiorella, 2000. "Can indeterminacy explain the short-run non-neutrality of money?," Working Paper Series 0032, European Central Bank.
    9. Moral Zuazo, María Paz & Barañano Mentxaka, Ilaski, 2007. "Consumption-Leisure Trade-offs and Persistency in Business Cycles," BILTOKI 2007-05, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).

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