Money and capital

S. Boragan Aruoba, Christopher Waller and Randall Wright

Journal of Monetary Economics, 2011, vol. 58, issue 2, 98-116

Abstract: The effects of money (anticipated inflation) on capital formation is a classic issue in macroeconomics. Previous papers adopt reduced-form approaches, putting money in the utility function, or imposing cash in advance, but using otherwise frictionless models. We follow instead a literature that tries to be explicit about the frictions making money essential. This introduces new elements, including a two-sector structure with centralized and decentralized markets, stochastic trading opportunities, and bargaining. These elements matter quantitatively and numerical results differ from findings in the reduced-form literature. The analysis also reduces a gap between microfounded monetary economics and mainstream macro.

Date: 2011
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Citations: View citations in EconPapers (69)

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Related works:
Working Paper: Money and capital (2007)
Working Paper: Money and Capital (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:58:y:2011:i:2:p:98-116

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