The Barnett Critique After Three Decades: A New Keynesian Analysis

Michael Belongia and Peter Ireland

No 736, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper extends a New Keynesian model to include roles for currency and deposits as competing sources of liquidity services demanded by households. It shows that, both qualitatively and quantitatively, the Barnett critique applies: While a Divisia aggregate of monetary services tracks the true monetary aggregate almost perfectly, a simple-sum measure often behaves quite differently. The model also shows that movements in both quantity and price indices for monetary services correlate strongly with movements in output following a variety of real and nominal shocks. Finally, the analysis characterizes the optimal monetary policy response to shocks that originate in an explicitly-modeled financial sector.

Keywords: Barnett critique; Divisia; liquidity; aggregation (search for similar items in EconPapers)
JEL-codes: C43 E32 E41 E52 (search for similar items in EconPapers)
Date: 2010-05-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (27)

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Related works:
Journal Article: The Barnett critique after three decades: A New Keynesian analysis (2014)
Working Paper: The Barnett Critique After Three Decades: A New Keynesian Analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:736

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