Unanticipated Money Growth and the Business Cycle Reconsidered

Thomas Cooley and Gary Hansen

Journal of Money, Credit and Banking, 1997, vol. 29, issue 4, 624-48

Abstract: The role of unanticipated changes in money growth for aggregate fluctuations is reexamined using the methods of quantitative equilibrium business cycle theory. A stochastic growth model with money is constructed in which production and trade take place in spatially separated markets (islands). Following Robert E. Lucas (1972, 1975), individuals only observe prices in their own local market, causing them to confuse changes in the average price level with changes in market specific relative prices. The authors show that this mechanism can lead to large fluctuations in real economic activity. Some aspects of the statistical properties of these fluctuations, however, differ significantly from those describing U.S. business cycles. Copyright 1997 by Ohio State University Press.

Date: 1997
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Journal Article: Unanticipated money growth and the business cycle reconsidered (1997)
Working Paper: Unanticipated Money (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:29:y:1997:i:4:p:624-48

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