The Barnett critique after three decades: A New Keynesian analysis

Michael Belongia and Peter Ireland

Journal of Econometrics, 2014, vol. 183, issue 1, 5-21

Abstract: This paper extends a New Keynesian model to include roles for currency and deposits as competing sources of liquidity services demanded by households. It shows that, both qualitatively and quantitatively, the Barnett critique applies: while a Divisia aggregate of monetary services tracks the true monetary aggregate almost perfectly, a simple-sum measure often behaves quite differently. The model also shows that movements in both quantity and price indexes for monetary services correlate strongly with movements in output following a variety of shocks. Finally, the analysis characterizes the optimal monetary policy response to disturbances that originate in the financial sector.

Keywords: Barnett critique; Divisia monetary aggregates; New Keynesian models (search for similar items in EconPapers)
JEL-codes: C43 E32 E41 E52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (99)

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Related works:
Working Paper: The Barnett Critique After Three Decades: A New Keynesian Analysis (2012)
Working Paper: The Barnett Critique After Three Decades: A New Keynesian Analysis (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:183:y:2014:i:1:p:5-21

DOI: 10.1016/j.jeconom.2014.06.006

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