Financial Innovation and the Neutrality of Money

Michael Moore

No 569, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: It is argued that financial innovation, in so far as it affects the technology for carrying out transactions, is endogenous, discrete and irreversible. This observation is developed to provide microfoundations for a type of `liquidity' trap and its implications of this are explored in an intertemporal optimizing macroeconomic model with perfect foresight. The main conclusion is that financial innovation of this kind can lead to co-ordination failure in the financial sector. Consequently changes in the nominal money stock can have real effects. These results are illustrated diagramatically using a novel form of the IS/LM apparatus. The analysis also suggests there may be a connection between instability in the demand for money and the Phillips curve may be connected.

Keywords: Demand for Money; Innovation; IS-LM Curve; Monetary Policy (search for similar items in EconPapers)
Date: 1991-08
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=569 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:569

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=569

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().