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Money in the production function: a New Keynesian DSGE perspective

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  • Jonathan Benchimol

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, ESSEC Business School)

Abstract

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.

Suggested Citation

  • Jonathan Benchimol, 2011. "Money in the production function: a New Keynesian DSGE perspective," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00800539, HAL.
  • Handle: RePEc:hal:cesptp:hal-00800539
    Note: View the original document on HAL open archive server: https://paris1.hal.science/hal-00800539
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Is money a factor of production?
      by Economic Logician in Economic Logic on 2013-03-28 19:38:00

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    More about this item

    Keywords

    Money in the production function; DSGE; Bayesian estimation;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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