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Money and capital

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  • S. Boragan Aruoba
  • Christopher J. Waller
  • Randall Wright

Abstract

We revisit classic questions concerning the effects of money on investment in a new framework: a two-sector model where some trade occurs in centralized and some in decentralized markets, as in recent monetary theory, but extended to include capital. This allows us to incorporate novel elements from the microfoundations literature on trading with frictions, including stochastic exchange opportunities, alternative pricing mechanisms, etc. We calibrate models with bargaining and with price taking in the decentralized market.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0714.

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Date of creation: 2007
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Handle: RePEc:fip:fedcwp:0714

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Keywords: Money ; Capital ; Monetary policy;

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