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Endogenous Financing and the Long Run Impact of Money Growth on Output and Prices

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  • John D. Stiver

    (University of Connecticut)

Abstract

Most monetary models make use of the quantity theory of money along with a Phillips curve. This implies a strong correlation between money growth and output in the short run (with little or no correlation between money and prices) and a strong long run correlation between money growth and inflation and inflation (with little or no correlation between money growth and output). The empirical evidence between money and inflation is very robust, but the long run money/output relationship is ambiguous at best. This paper attempts to explain this by looking at the impact of money growth on firm financing.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2003-36.

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Length: 21 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:uct:uconnp:2003-36

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  1. Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
  2. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects, monetary policy and the business cycle," Working Paper Series, Macroeconomic Issues 92-15, Federal Reserve Bank of Chicago.
  3. Michael Dotsey & Peter Ireland, 1993. "Liquidity effects and transactions technologies," Working Paper 93-01, Federal Reserve Bank of Richmond.
  4. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August.
  5. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  6. Poirier, Dale J, 1991. "A Bayesian View of Nominal Money and Real Output through a New Classical Macroeconomic Window," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(2), pages 125-48, April.
  7. Thomas Cooley & Vincenzo Quadrini, 2006. "Monetary policy and the financial decisions of firms," Economic Theory, Springer, vol. 27(1), pages 243-270, 01.
  8. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc.
  9. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  10. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
  11. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  12. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  13. Charles Ka-Yui Leung & Guang-Jia Zhang, 2000. "Inflation and Capital Gains Taxes in a Small Open Economy," Departmental Working Papers _119, Chinese University of Hong Kong, Department of Economics.
  14. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
  15. Albuquerque, R. & Hopenhayn, H.A., 1997. "Optimal Dynamic Lending Contracts with Imperfect Enforceability," RCER Working Papers 439, University of Rochester - Center for Economic Research (RCER).
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