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Inside Money, Credit, and Investment

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  • Dressler, Scott
  • Li, Victor

Abstract

This paper presents a monetary explanation for several business-cycle facts: (i) household and business investment are procyclical, (ii) business investment lags household investment, (iii) household investment is positively correlated with M1, and (iv) household credit outstanding is positively correlated with and more volatile than household investment. We develop a dynamic general equilibrium model that features financial intermediaries accepting deposits and providing loans, credit-producing firms, and inside (bank-created) money. It is shown that the transmission of monetary shocks facilitated by credit and inside money creation is able to reconcile these real and monetary observations regarding the cyclical behavior of investment.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1734.

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Date of creation: Jan 2007
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Handle: RePEc:pra:mprapa:1734

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Cited by:
  1. Totzek, Alexander, 2009. "Banks and early deposit withdrawals in a new Keynesian framework," Economics Working Papers 2009,08, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Roman Sustek & Peter Rupert & Finn Kydland, 2012. "Housing Dynamics," 2012 Meeting Papers 315, Society for Economic Dynamics.
  3. Carlos Garriga & Finn E. Kydland & Roman Sustek, 2013. "Mortgages and Monetary Policy," NBER Working Papers 19744, National Bureau of Economic Research, Inc.
  4. Finn E. Kydland & Peter Rupert & Roman Sustek, 2012. "Housing Dynamics over the Business Cycle," NBER Working Papers 18432, National Bureau of Economic Research, Inc.
  5. Victor E. Li, 2012. "Monetary Transmission and the Search for Liquidity," Villanova School of Business Department of Economics and Statistics Working Paper Series 19, Villanova School of Business Department of Economics and Statistics.

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