Money in the Utility and Production Function: A DSGE Approach

Anxing Peng (), Zhuangyu Wei () and Xiaoling Yu ()
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Anxing Peng: Chang’an University, School of Economics and Management
Zhuangyu Wei: Xiamen University, School of Management, China Institute for Studies in Energy Policy, Collaborative Innovation Center for Energy Economics and Energy Policy
Xiaoling Yu: Foshan University, School of Economics

De Economist, 2025, vol. 173, issue 4, No 2, 559-580

Abstract: Abstract Both New Classical and New Keynesian economists tend to ignore the supply-side effects of monetary policy. In order to investigate these effects, we propose a novel MIUP (money-in-the-utility-and-production-function) model by extending the standard New Keynesian framework. Our findings indicate that incorporating money into the production function helps capture the impacts of monetary policy on aggregate supply. The greater the real balances elasticity of output, the stronger the supply-side effects of monetary policy. When prices are sticky, easing monetary policy produces a positive supply-side effect that amplifies its positive demand-side effect on output. In contrast, when prices are flexible, monetary policy does not affect real variables.

Keywords: MIUP model; Monetary policy; Supply-side effect (search for similar items in EconPapers)
JEL-codes: E12 E23 E41 E52 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10645-025-09458-6

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