Money in the production function: a New Keynesian DSGE perspective
Résumé
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.
Domaines
Economies et finances
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MoneyProductionFunctionNewKeynesianDSGEPerspective.pdf (434.78 Ko)
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