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The real effects of money growth in dynamic general equilibrium

  • Graham, Liam
  • Snower, Dennis J.

We analyse the effects of money growth within a standard New Keynesian framework and show that the interaction between staggered nominal contracts and money growth leads to a long-run trade-off between output and money growth. We explore the microeconomic mechanisms that lead to this trade-off, and show that it remains even when the contract length is endogenised. JEL Classification: E20, E40, E50

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Paper provided by European Central Bank in its series Working Paper Series with number 0412.

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Date of creation: Nov 2004
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Handle: RePEc:ecb:ecbwps:20040412
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  1. Graham, Liam, 2003. "Unemployment and the smoothness of consumption in business cycle models," Economics Letters, Elsevier, vol. 79(2), pages 263-267, May.
  2. Cecchetti, Stephen G, 1987. "Indexation and Incomes Policy: A Study of Wage Adjustment in Unionized Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 391-412, July.
  3. repec:nbr:nberre:0126 is not listed on IDEAS
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  5. Arturo Extrella & Jeffrey C. Fuhrer, 1998. "Dynamic inconsistencies: counterfactual implications of a class of rational expectations models," Working Papers 98-5, Federal Reserve Bank of Boston.
  6. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," NBER Working Papers 7884, National Bureau of Economic Research, Inc.
  7. Graham, Liam & Snower, Dennis J., 2002. "The Return of the Long-Run Phillips Curve," IZA Discussion Papers 646, Institute for the Study of Labor (IZA).
  8. 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.
  9. repec:cup:macdyn:v:2:y:1998:i:3:p:383-400 is not listed on IDEAS
  10. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  11. Devereux, Michael B. & Yetman, James, 2002. "Menu costs and the long-run output-inflation trade-off," Economics Letters, Elsevier, vol. 76(1), pages 95-100, June.
  12. David Backus, 1984. "Exchange Rate Dynamics in a Model with Staggered Wage Contracts," Working Papers 561, Queen's University, Department of Economics.
  13. Jordi Gali, 2002. "New Perspectives on Monetary Policy, Inflation, and the Business Cycle," NBER Working Papers 8767, National Bureau of Economic Research, Inc.
  14. Guido Ascari, 2004. "Staggered prices and trend inflation: some nuisances," Macroeconomics 0404029, EconWPA.
  15. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 383-400, September.
  16. Benabou, Roland & Bismut Claude, 1988. "Wage bargaining and staggered contracts : theory and estimation," CEPREMAP Working Papers (Couverture Orange) 8810, CEPREMAP.
  17. Taylor, John B., 1980. "Output and price stability: An international comparison," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 109-132, May.
  18. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  19. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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