The Own-Price of Money and a New Channel of Monetary Transmission

Michael Belongia and Peter Ireland

No 544, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Traditionally, the effects of monetary policy actions on output are thought to be transmitted via monetary or credit channels. Real business cycle theory, by contrast, highlights the role of real price changes as a source of revisions in spending and production decisions. Motivated by the desire to focus on the effects of price changes in the monetary transmission mechanism, this paper incorporates a direct measure of the real own-price of money into an estimated vector autoregression and a calibrated real business cycle model. Consistent with this new view of the monetary transmission mechanism, both approaches reveal that movements in the own-price of money are strongly related to movements in output.

JEL-codes: E32 E51 E52 (search for similar items in EconPapers)
Date: 2002-10-26
New Economics Papers: this item is included in nep-mon
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Working Paper: The Own-Price of Money and a New Channel of Monetary Transmission (2002)
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