Money in the Production Function : A New Keynesian DSGE Perspective

Abstract : This paper proposes a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where real money balances enter the production function. By using a Bayesian analysis, our model shows that money is not an omitted input to the production process and rejects the decreasing returns to scale hypothesis. Our simulations suggest that money plays a negligible role in the dynamics of output and inflation, despite its inclusion in the production function. In addition, we introduce the flexible-price real money balances concept.
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Jonathan Benchimol. Money in the Production Function : A New Keynesian DSGE Perspective. 2011. ⟨hal-00795547⟩

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