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Money in the Production Function: a new Keynesian DSGE perspective

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Abstract

This paper proposes a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where real money balances enter the production function. By using a Bayesian analysis, our model shows that money is not an omitted input to the production process and rejects the decreasing returns to scale hypothesis. Our simulations suggest that money plays a negligible role in the dynamics of output and inflation, despite its inclusion in the production function. In addition, we introduce the flexible-price real money balances concept.

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File URL: http://hal-essec.archives-ouvertes.fr/docs/00/79/55/47/PDF/WP1304.pdf
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Bibliographic Info

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number WP1304.

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Length: 33 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:ebg:essewp:dr-13004

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Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
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Web page: http://www.essec.edu/
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Keywords: Money in the production function; DSGE; Bayesian estimation;

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  3. Jong S. You, 1981. "Money, Technology, and the Production Function: An Empirical Study," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 515-24, August.
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  8. Hasan, M Aynul & Mahmud, Syed F, 1993. "Is Money an Omitted Variable in the Production Function? Some Further Results," Empirical Economics, Springer, vol. 18(3), pages 431-45.
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  10. Cynthia Benzing, 1989. "An Update on Money in the Production Function," Eastern Economic Journal, Eastern Economic Association, vol. 15(3), pages 235-239, Jul-Sep.
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  24. Sinai, Allen & Stokes, Houston H, 1975. "Real Money Balances: An Omitted Variable from the Production Function? A Reply," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 247-52, May.
  25. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, January.
  26. Short, Eugenie Dudding, 1979. "A New Look at Real Money Balances as a Variable in the Production Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 326-39, August.
  27. Subrahmanyam, Ganti, 1980. "Real Money Balances as a Factor of Production: Some New Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 280-83, May.
  28. Sinai, Allen & Stokes, Houston, 1977. "Real Money Balances as a Variable in the Production Function: A Further Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(2), pages 372-73, May.
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  30. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Is money a factor of production?
    by Economic Logician in Economic Logic on 2013-03-28 14:38:00

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