Unanticipated Money Growth and the Business Cycle Reconsidered

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). Follo...

Full description

Saved in:
Bibliographic Details
Published inJournal of money, credit and banking Vol. 29; no. 4; pp. 624 - 648
Main Authors Cooley, Thomas F., Hansen, Gary D.
Format Journal Article
LanguageEnglish
Published Columbus Ohio State University Press 01.11.1997
John Wiley & Sons, Inc
Subjects
Analysis
Business cycles
Business economics
Cash
Consumer economics
Economic activity
Economic fluctuations
Economic growth models
Economic modeling
Economic models
Economic theory
Equilibrium models
Experimental economics
Growth models
Inflation
Market equilibrium
Monetary policy
Money
Price level changes
Prices
Steady state economies
Studies
United States > US
Online AccessGet full text

Cover

More Information
Summary: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 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. We 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.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0022-2879
1538-4616
DOI:10.2307/2953654