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The Monetary Transmission Mechanism

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  • Jess Benhabib
  • Roger Farmer

Abstract

Since the writing of David Hume, in the eighteenth century, there has been a general agreement amogst economists that an increase in the stock of money leads, initially, to an increase in economic activity. Most writer have attributed the real effects of money, in the short run, to mistaken expectations, non-market clearing or both. We argue instead, that neither of these channels is needed to explain the facts. We show that a competitive market-clearing model in which money enter the production function can reproduce the broad features of data.

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Bibliographic Info

Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 2055.

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Date of creation: 05 Mar 1998
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Handle: RePEc:cla:levarc:2055

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References

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  1. Miles S. Kimball, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," NBER Working Papers 5046, National Bureau of Economic Research, Inc.
  2. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  3. Kenneth J. Matheny, 1998. "Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes," Economic Theory, Springer, vol. 11(2), pages 379-402.
  4. Farmer, Roger E A, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 321-32, April.
  5. repec:cup:macdyn:v:1:y:1997:i:4:p:740-69 is not listed on IDEAS
  6. Roger E.A. Farmer, 1990. "Sticky Prices," UCLA Economics Working Papers 588, UCLA Department of Economics.
  7. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  8. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-86, July.
  9. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
  10. Farmer, Roger E.A., 2000. "Two New Keynesian Theories Of Sticky Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 74-107, March.
  11. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  12. Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of Monetary Economy," Discussion Papers 825, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August.
  14. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
  15. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
  16. Roger E.A. Farmer, 1994. "The Econometrics of Indeterminacy: An Applied Study," UCLA Economics Working Papers 720, UCLA Department of Economics.
  17. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  18. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April.
  19. Jeanne, Olivier, 1998. "Generating real persistent effects of monetary shocks: How much nominal rigidity do we really need?," European Economic Review, Elsevier, vol. 42(6), pages 1009-1032, June.
  20. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February.
  21. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  22. Farmer, Roger E. A., 1992. "Nominal price stickiness as a rational expectations equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 317-337, April.
  23. Ascari, G. & Garcia, J.A., 1999. "Relative Wage Concern and the Keynesian Contract Multiplier," Economics Working Papers eco99/5, European University Institute.
  24. Farmer, Roger E. A., 1988. "What is a liquidity crisis?," Journal of Economic Theory, Elsevier, vol. 46(1), pages 1-15, October.
  25. Benhabib, Jess & Bull, Clive, 1983. "The Optimal Quantity of Money: A Formal Treatment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 101-11, February.
  26. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues WP-96-28, Federal Reserve Bank of Chicago.
  27. Calvo, Guillermo A, 1979. "On Models of Money and Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
  28. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  29. Jess Benhabib & Roger E.A. Farmer, 1991. "The Aggregate Effects of Monetary Externalities," UCLA Economics Working Papers 617, UCLA Department of Economics.
  30. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
  31. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  32. repec:cup:macdyn:v:4:y:2000:i:1:p:74-107 is not listed on IDEAS
  33. Farmer, Roger E.A. & Woodford, Michael, 1997. "Self-Fulfilling Prophecies And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 1(04), pages 740-769, December.
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