Financial Constraints, Aggregate Supply, and the Monetary Transmission Mechanism

Domenico Delli Gatti and Mauro Gallegati

The Manchester School of Economic & Social Studies, 1997, vol. 65, issue 2, 101-26

Abstract: The authors derive two propositions identifying the conditions for monetary policy effectiveness due to the interaction of real and financial markets. The first proposition shows that, in a regime of endogenous money, monetary policy is effective even if policy moves are anticipated because changes in the interest rate impinge upon long-run output. The second proposition shows that in a regime of exogenous money--in which the Central Bank controls base money and structural parameters affecting the behavior of banks--monetary policy affects output if its impact on money is different from its impact on credit. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:65:y:1997:i:2:p:101-26

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