A Finance Theory of Monetary Policy in a World Without Money

Paul Dalziel

No 263800, Department of Economics Discussion Papers from University of Canterbury - New Zealand

Abstract: This paper introduces a finance channel for monetary policy. Following Black (1970) there is no money commodity in the paper's model. Instead, the medium of exchange is bank deposits supplied by the financial system in response to optimal rational expectations decisions by firms about financing investment in new capital assets, and demanded by households as part of their optimized financial portfolio of accumulated savings. The model demonstrates how central banks maintain price stability through changes in base interest rates (the Wicksell monetary policy rule) which influence the debt financing decisions of firms.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 25
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Persistent link: https://EconPapers.repec.org/RePEc:ags:canzdp:263800

DOI: 10.22004/ag.econ.263800

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