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A Note on Money and the Conduct of Monetary Policy

Chadha, Jagjit S., Corrado, Luisa, Holly, Sean (2013) A Note on Money and the Conduct of Monetary Policy. Macroeconomic Dynamics, First . pp. 1-30. ISSN 1365-1005. (doi:10.1017/S1365100513000187) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1017/S1365100513000187

Abstract

Prior to the financial crisis, mainstream monetary policy practice had become disconnected from money. We outline the basic rationale for this development using a simple model of money and credit in which we explore the conditions under which money matters directly for the conduct of policy. Then, using a DSGE model, we examine the circumstances under which money becomes more closely linked to inflation. We find that money matters when the variance of the supply of lending dominates productivity and the velocity of money demand. This is because amplifying the role of loans supply leads to an expansion in aggregate demand, via a compression of the external finance premium, which is inflationary. We consider a number of alternative monetary policy rules, and find that a rule which exploits the joint information from money and the external finance premium performs best.

Item Type: Article
DOI/Identification number: 10.1017/S1365100513000187
Additional information: number of additional authors: 2;
Uncontrolled keywords: Money; Dynamic Stochastic General Equilibrium; Policy Rules; External Finance Premium
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Stewart Brownrigg
Date Deposited: 07 Mar 2014 00:05 UTC
Last Modified: 29 May 2019 12:21 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/40229 (The current URI for this page, for reference purposes)
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