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Money, capital, and real liquidity effects with habit formation

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  • Arman Mansoorian
  • Leo Michelis

Abstract

. The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state. Nevertheless, habits give rise to real liquidity effects in the short run. After an increase in the nominal interest rate, employment falls, resulting in a fall in capital accumulation and in the short‐ and long‐term real interest rates. The adjustment of the capital stock is non‐monotonic. Employment and the short‐ and long‐term real interest rates may also adjust non‐monotonically. JEL classification: E22, E52, E58 Monnaie, capital, et effets réels de liquidité quand il y a formation d’habitudes. On ré‐examine le rôle de la monnaie dans un modèle d’utilité quand travail et formation d’habitudes sont endogènes. Dans le cadre des postulats usuels à propos des préférences, et d’une règle de politique qui définit le taux d’intérêt en ajustant le rythme de croissance de la monnaie, le modèle fait preuve de super‐neutralité en régime permanent. Néanmoins, les habitudes entraînent des effets réels de liquiditéà court terme. Après un accroissement dans le taux d’intérêt nominal, l’emploi chute, ce qui entraîne un ralentissement dans l’accumulation du capital et une chute des taux d’intérêt réels à court et à long terme. L’ajustement dans le stock de capital n’est pas monotone. L’emploi et les taux d’intérêt réels à court et à long terme peuvent aussi ne pas s’ajuster de façon monotone.

Suggested Citation

  • Arman Mansoorian & Leo Michelis, 2005. "Money, capital, and real liquidity effects with habit formation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 430-453, May.
    • Handle: RePEc:wly:canjec:v:38:y:2005:i:2:p:430-453
    DOI: 10.1111/j.0008-4085.2005.00287.x
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    Cited by:

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    2. Buffie, Edward F. & Atolia, Manoj, 2012. "Resurrecting the weak credibility hypothesis in models of exchange-rate-based stabilization," European Economic Review, Elsevier, vol. 56(3), pages 361-372.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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