Money Injections in a Neoclassical Growth Model

Guy Ertz and Franck Portier ()
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Guy Ertz: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 1998018, Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper analyzes the effects and transmission mechanism related to the alternative injection channels - i.e to households versus a financial intermediary - in a neoclassical growth model with reserve requirements and money multiplier effects. The money injected directly to a financial intermediaries is not subject to reserve requirements while deposits are. As suggested in Fuerst [1994], we show that it does matter what injection channel is used as long as reserve requirements on saving deposits are nonzero. However, it matters only for a scale factor and that the transmission mechanism of money are identical. There are no additional tax avoidance effects that would stimulate intermediation when money is injected directly to the financial intermediary. The model allows for the definition of a set of monetary aggregates, from the most narrow (nonborrowed reserves) to the largest (M1). There is therefore a potential room to understand why different aggregates display different cyclical pattern.

Keywords: Business Cycle; Financial Intermediation; Money Multiplier (search for similar items in EconPapers)
JEL-codes: E31 E32 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 1998-07-01
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Persistent link: http://EconPapers.repec.org/RePEc:ctl:louvir:1998018

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