RE‐EXAMINING THE IMPLICATIONS OF THE NEW CONSENSUS: ENDOGENOUS MONEY AND TAYLOR RULES IN A SIMPLE NEOCLASSICAL MACRO MODEL

Peter Docherty ()

Metroeconomica, 2009, vol. 60, issue 3, 495-524

Abstract: This paper re‐examines the impact of endogenous money in a neoclassical model with interest‐sensitive expenditures. It first outlines a benchmark model with exogenous money and the usual full employment and money growth‐determined inflation results. It then replaces exogenous money with endogenous money, which is shown to generate model indeterminacy. Two methods of resolving this indeterminacy are then explored: money illusion and a Taylor rule for monetary policy, a key feature of new consensus models. The paper concludes that endogenous money has negative implications for the behaviour and interpretation of neoclassical and new consensus models.

Date: 2009
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https://doi.org/10.1111/j.1467-999X.2008.00348.x

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