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Money Injections in a Neoclassical Growth Model

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  • Ertz, Guy

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Portier, Franck

    (CEPREMAP; CREST)

Abstract

This paper analyzes the effects and transmission mechanism related to the alternative injection channels - i.e to households versus a financial intermediary - in a neoclassical growth model with reserve requirements and money multiplier effects. The money injected directly to a financial intermediaries is not subject to reserve requirements while deposits are. As suggested in Fuerst [1994], we show that it does matter what injection channel is used as long as reserve requirements on saving deposits are nonzero. However, it matters only for a scale factor and that the transmission mechanism of money are identical. There are no additional tax avoidance effects that would stimulate intermediation when money is injected directly to the financial intermediary. The model allows for the definition of a set of monetary aggregates, from the most narrow (nonborrowed reserves) to the largest (M1). There is therefore a potential room to understand why different aggregates display different cyclical pattern.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1998018.

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Length: 15
Date of creation: 01 Jul 1998
Date of revision:
Handle: RePEc:ctl:louvir:1998018

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Keywords: Business Cycle; Financial Intermediation; Money Multiplier;

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  1. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  2. Englund, Peter & Svensson, Lars E O, 1988. "Money and Banking in a Cash-in-Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 681-705, November.
  3. V. V. Chari & Lawrence J. Christiano & Martin Eichenbaum, 1995. "Inside Money, Outside Money and Short Term Interest Rates," NBER Working Papers 5269, National Bureau of Economic Research, Inc.
  4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  5. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," RCER Working Papers 155, University of Rochester - Center for Economic Research (RCER).
  6. Robert G. King & Mark W. Watson, 1995. "Money, prices, interest rates and the business cycle," Working Paper Series, Macroeconomic Issues 95-10, Federal Reserve Bank of Chicago.
  7. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
  8. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  9. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  10. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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