Money and capital
By: by S. Borağan Aruoba, Christopher J. Waller, and Randall Wright
Contributors: Waller, Christopher, 1959-; Wright, Randall, 1956-; Federal Reserve Bank of Cleveland
Series: Working paper -- WP07-14; Working paper (Federal Reserve Bank of Cleveland : Online) -- WP07-14.
Publisher: Federal Reserve Bank of Cleveland
Published: 2007
Place of publication: Cleveland, Ohio]
Language: eng
Format: [electronic resource] /
Description: "We revisit classic questions concerning the effects of money on investment in a new framework: a two-sector model  where some trade occurs in centralized and some in decentralized markets, as in recent monetary theory, but extended  to include capital.  This allows us to incorporate novel elements from the microfoundations literature on trading with  frictions, including stochastic exchange opportunities, alternative pricing mechanisms, etc.  We calibrate models with  bargaining and with price taking in the decentralized market.  With bargaining, inflation has little impact on investment,  but a sizable impact on welfare: going from 10 percent inflation to the Friedman rule e.g.  barely affects capital, but is  worth 3 percent of consumption.  With price taking, this policy increases capital between 3 percent and 5 percent,  and is worth 1.5 percent of consumption across steady states or 1 percent with transition.  Fiscal distortions are also big.   So is the impact of holdup problems from bargaining, even if the decentralized market accounts for only 5 percent of  output.  Many of these numbers are quite different from previous studies.  Our two-sector specification is a key to the results"--Federal Reserve Bank of Cleveland web site.
Notes: Title from PDF file as viewed on 10/25/2007.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.