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Money in the Production Function : A New Keynesian DSGE Perspective

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  • Jonathan Benchimol

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, PhD Program - ESSEC Business School)

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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00795547.

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Date of creation: 01 Feb 2013
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Handle: RePEc:hal:cesptp:hal-00795547

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Keywords: Money in the production function; DSGE; Bayesian estimation.;

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  1. Jonathan Benchimol & André Fourçans, 2010. "Money and risk aversion in a DSGE framework: a Bayesian application to the Euro zone," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00800082, HAL.
  2. Khan, Ashfaque H & Ahmad, Mushtaq, 1985. "Real Money Balances in the Production Function of a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 336-40, May.
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  7. 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.
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  24. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2008. "Evaluating an estimated new Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2690-2721, August.
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  28. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
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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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