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Money in the Utility and Production Function: A DSGE Approach

Author

Listed:
  • Anxing Peng

    (Chang’an University, School of Economics and Management)

  • Zhuangyu Wei

    (Xiamen University, School of Management, China Institute for Studies in Energy Policy, Collaborative Innovation Center for Energy Economics and Energy Policy)

  • Xiaoling Yu

    (Foshan University, School of Economics)

Abstract

Both New Classical and New Keynesian economists tend to ignore the supply-side effects of monetary policy. In order to investigate these effects, we propose a novel MIUP (money-in-the-utility-and-production-function) model by extending the standard New Keynesian framework. Our findings indicate that incorporating money into the production function helps capture the impacts of monetary policy on aggregate supply. The greater the real balances elasticity of output, the stronger the supply-side effects of monetary policy. When prices are sticky, easing monetary policy produces a positive supply-side effect that amplifies its positive demand-side effect on output. In contrast, when prices are flexible, monetary policy does not affect real variables.

Suggested Citation

  • Anxing Peng & Zhuangyu Wei & Xiaoling Yu, 2025. "Money in the Utility and Production Function: A DSGE Approach," De Economist, Springer, vol. 173(4), pages 559-580, December.
    • Handle: RePEc:kap:decono:v:173:y:2025:i:4:d:10.1007_s10645-025-09458-6
    DOI: 10.1007/s10645-025-09458-6
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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