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| Author: | Shi, S. |
| Title: | Search for a monetary propagation mechanism |
| Journal: | Journal of Economic Theory
1998 : AUG, VOL. 81:2, p. 314-352 |
| Index terms: | ECONOMIC THEORY MODELS MONETARY POLICY GROWTH EMPLOYMENT |
| Language: | eng |
| Abstract: | In the paper, a monetary propagation mechanism is examined in a economy where exchanges in goods and labour markets involve costly search. It is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high. The model produces persistent responses in employment and output to money growth shocks even when the shocks have no persistence. In addition, the model generates desirable features in job vacancy, sales, inventory, and the velocity of money. All these features emerge in an economy with perfectly flexible prices and wages. |
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