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The Monetary Transmission Mechanism

Author

Listed:
  • Benhabib, J.
  • Farmer, R.E.A.

Abstract

Since the writing of David Hume, in the eighteenth century, there has been a general agreement amogst economists that an increase in the stock of money leads, initially, to an increase in economic activity. Most writer have attributed the real effects of money, in the short run, to mistaken expectations, non-market clearing or both. We argue instead, that neither of these channels is needed to explain the facts. We show that a competitive market-clearing model in which money enter the production function can reproduce the broad features of data.

Suggested Citation

  • Benhabib, J. & Farmer, R.E.A., 1999. "The Monetary Transmission Mechanism," Economics Working Papers eco99/35, European University Institute.
    • Handle: RePEc:eui:euiwps:eco99/35
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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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