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- Title
Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes.
- Authors
Matheny, Kenneth J.
- Abstract
Summary. To a greater extent than is often stressed in existing literature, preference assumptions affect responses to money shocks in equilibrium monetary models. Temporary money shocks can have persistent real effects if the marginal utility of leisure is a decreasing function of consumption, where leisure is measured as time endowment less market labor effort, and consumption refers to market produced goods. This condition is an empirically supported implication of home production models. Though not theoretically necessary for supporting the existence of short run real effects, the presence of distortionary taxes and endogenous productivity can have significant quantitative effects on responses to temporary money supply shocks.
- Subjects
MONEY supply; CONSUMPTION (Economics); LEISURE; ECONOMICS
- Publication
Economic Theory, 1998, Vol 11, Issue 2, p379
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s001990050192