Monetary shocks in a spatial overlapping generations model
In a classic paper, "The Lag in Effect of Monetary Policy," Friedman (1961) describes an expansionary open market operation as diffusing across the economy, pulling the price in one market out of line with the price in the next market as it spreads. The objective of this paper is to build a model where this process is made explicit, specifically, where money affects real economic activity by altering relative prices of goods as it spills from one market into the next. Thus the paper superimposes a monetary overlapping generations model on a simple abstract spatial structure--specifically, a graph--and then studies the effect of an expansionary monetary policy.
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