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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," Post-Print hal-00572374, 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. Allen Sinai & Houston H. Stokes, 1991. "Real Money Balances in the Production Function: A Comment," Eastern Economic Journal, Eastern Economic Association, vol. 17(4), pages 533-535, Oct-Dec.
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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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