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Money in the production function: a New Keynesian DSGE perspective

  • Jonathan Benchimol

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Economics Department - ESSEC Business School, TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris I - Panthéon-Sorbonne)

This paper proposes a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where real money balances enter the production function. By using a Bayesian analysis, our model shows that money is not an omitted input to the production process and rejects the decreasing returns to scale hypothesis. Our simulations suggest that money plays a negligible role in the dynamics of output and inflation, despite its inclusion in the production function. In addition, we introduce the flexible-price real money balances concept.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00800539.

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Date of creation: 08 Dec 2011
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Handle: RePEc:hal:cesptp:hal-00800539
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