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The Monetary Transmission Mechanism

  • Benhabib, J.
  • Farmer, R.E.A.

Most authors have attributed the real effects of money in the short run either to mistaken expectations or to non-market clearing or both. In this paper we argue that neither of these channels is needed to explain the facts. We show that a competitive market clearing model in which money enters the production function is fully capable of mimicking the broad features of the data. Our argument relies on an explanation of "price stickiness" that exploits a multiplicity of equlibria in a rational expectations model.

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File URL: http://econ.as.nyu.edu/docs/IO/9383/RR96-13.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 96-13.

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Length: 24 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:cvs:starer:96-13
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C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012

Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Order Information: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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References listed on IDEAS
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  1. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 183-203.
  2. Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of a Monetary Economy," Discussion Papers 813, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Olivier Jeanne, 1997. "Generating Real Persistent Effects of Monetary Shocks: How Much Nominal Rigidity Do We Really Need?," NBER Working Papers 6258, National Bureau of Economic Research, Inc.
  4. Farmer, R.E.A., 1999. "Two New Keynesian Theories of Sticky Prices," Economics Working Papers eco99/33, European University Institute.
  5. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  6. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  7. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  8. Benhabib, Jess & Bull, Clive, 1981. "The Optimal Quantity of Money: A Formal Treatment," Working Papers 81-11, C.V. Starr Center for Applied Economics, New York University.
  9. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-77, November.
  10. Roger E.A. Farmer, 1994. "The Econometrics of Indeterminacy: An Applied Study," UCLA Economics Working Papers 720, UCLA Department of Economics.
  11. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 345-80.
  12. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Staff Report 227, Federal Reserve Bank of Minneapolis.
  13. Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS) 486, University of Warwick, Department of Economics.
  14. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  15. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
  16. Roger E.A. Farmer, 1990. "Sticky Prices," UCLA Economics Working Papers 588, UCLA Department of Economics.
  17. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  18. Benhabib, Jess & Farmer, Roger, 1991. "The Aggregate Effects of Monetary Externalities," Working Papers 91-24, C.V. Starr Center for Applied Economics, New York University.
  19. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
  20. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  21. repec:cup:macdyn:v:1:y:1997:i:4:p:740-69 is not listed on IDEAS
  22. Farmer, Roger E.A. & Woodford, Michael, 1997. "Self-Fulfilling Prophecies And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 1(04), pages 740-769, December.
  23. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1982. "Intertemporal Substitution in Macroeconomics," NBER Working Papers 0898, National Bureau of Economic Research, Inc.
  24. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
  25. Roger E. A. Farmer, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 321-332.
  26. Maurice Obstfeld & Kenneth S. Rogoff, 1981. "Speculative hyperinflations in a maximizing models: can we rule them out?," International Finance Discussion Papers 195, Board of Governors of the Federal Reserve System (U.S.).
  27. Ascari, G. & Garcia, J.A., 1999. "Relative Wage Concern and the Keynesian Contract Multiplier," Economics Working Papers eco99/5, European University Institute.
  28. Kenneth J. Matheny, 1998. "Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 379-402.
  29. Farmer, Roger E. A., 1992. "Nominal price stickiness as a rational expectations equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 317-337, April.
  30. Calvo, Guillermo A, 1979. "On Models of Money and Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
  31. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April.
  32. repec:cup:macdyn:v:4:y:2000:i:1:p:74-107 is not listed on IDEAS
  33. Farmer, Roger E. A., 1988. "What is a liquidity crisis?," Journal of Economic Theory, Elsevier, vol. 46(1), pages 1-15, October.
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