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The Monetary Transmission Mechanism

  • Benhabib, J.
  • Farmer, R.E.A.

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.

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Paper provided by European University Institute in its series Economics Working Papers with number eco99/35.

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Length: 81 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:eui:euiwps:eco99/35
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  1. Farmer, Roger E A, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 321-32, April.
  2. Kiminori Matsuyama, 1988. "Endogenous Price Fluctuations in an Optimizing Model of Monetary Economy," Discussion Papers 825, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. 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.
  4. Benhabiv, J. & Farmer, R.A.E., 1991. "The Aggregate Effects of Monetary Externalities," Papers 164, Cambridge - Risk, Information & Quantity Signals.
  5. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
  6. Jeanne, Olivier, 1998. "Generating real persistent effects of monetary shocks: How much nominal rigidity do we really need?," European Economic Review, Elsevier, vol. 42(6), pages 1009-1032, June.
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues WP-96-28, Federal Reserve Bank of Chicago.
  8. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
  9. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
  10. Maurice Obstfeld & Kenneth 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.).
  11. Farmer, Roger E.A., 2000. "Two New Keynesian Theories Of Sticky Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 74-107, March.
  12. Roger E.A. Farmer, 1994. "The Econometrics of Indeterminacy: An Applied Study," UCLA Economics Working Papers 720, UCLA Department of Economics.
  13. Ascari, G. & Garcia, J.A., 1999. "Relative Wage Concern and the Keynesian Contract Multiplier," Economics Working Papers eco99/5, European University Institute.
  14. Roger E.A. Farmer, 1990. "Sticky Prices," UCLA Economics Working Papers 588, UCLA Department of Economics.
  15. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  16. 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.
  17. 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.
  18. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  19. repec:cup:macdyn:v:1:y:1997:i:4:p:740-69 is not listed on IDEAS
  20. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  21. 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.
  22. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1982. "Intertemporal Substitution in Macroeconomics," NBER Working Papers 0898, National Bureau of Economic Research, Inc.
  23. Kenneth J. Matheny, 1998. "Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes," Economic Theory, Springer, vol. 11(2), pages 379-402.
  24. Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
  25. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  26. Laurence Ball & David Romer, 1987. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
  27. Farmer, Roger E. A., 1988. "What is a liquidity crisis?," Journal of Economic Theory, Elsevier, vol. 46(1), pages 1-15, October.
  28. 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.
  29. repec:cup:macdyn:v:4:y:2000:i:1:p:74-107 is not listed on IDEAS
  30. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  31. 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.
  32. 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.
  33. 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.
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