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Money in the Production Function : A New Keynesian DSGE Perspective

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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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Dates and versions

hal-00795547 , version 1 (28-02-2013)

Identifiers

  • HAL Id : hal-00795547 , version 1

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Jonathan Benchimol. Money in the Production Function : A New Keynesian DSGE Perspective. 2011. ⟨hal-00795547⟩
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