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Endogenous Financing and the Long Run Impact of Money Growth on Output and Prices

  • John D. Stiver

    (University of Connecticut)

Most monetary models make use of the quantity theory of money along with a Phillips curve. This implies a strong correlation between money growth and output in the short run (with little or no correlation between money and prices) and a strong long run correlation between money growth and inflation and inflation (with little or no correlation between money growth and output). The empirical evidence between money and inflation is very robust, but the long run money/output relationship is ambiguous at best. This paper attempts to explain this by looking at the impact of money growth on firm financing.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2003-36.

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Length: 21 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:uct:uconnp:2003-36
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Web page: http://www.econ.uconn.edu/

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  1. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  2. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  4. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
  5. Dotsey, Michael & Ireland, Peter, 1995. "Liquidity Effects and Transactions Technologies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1441-57, November.
  6. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  7. Thomas Cooley & Vincenzo Quadrini, 2006. "Monetary policy and the financial decisions of firms," Economic Theory, Springer, vol. 27(1), pages 243-270, 01.
  8. Leung, Charles Ka Yui & Zhang, Guang-Jia, 2000. "Inflation and capital gains taxes in a small open economy," International Review of Economics & Finance, Elsevier, vol. 9(3), pages 195-208, July.
  9. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
  10. Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Liquidity Effects, Monetary Policy, and the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1113-36, November.
  11. Poirier, Dale J, 1991. "A Bayesian View of Nominal Money and Real Output through a New Classical Macroeconomic Window," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(2), pages 125-48, April.
  12. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August.
  13. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc.
  14. Albuquerque, R. & Hopenhayn, H.A., 1997. "Optimal Dynamic Lending Contracts with Imperfect Enforceability," RCER Working Papers 439, University of Rochester - Center for Economic Research (RCER).
  15. Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
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