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An Heterogeneous-Agent New-Monetarist Model with an Application to Unemployment

Guillaume Rocheteau, Pierre-Olivier Weill, Tsz-Nga Wong

NBER Working Paper No. 25220
Issued in November 2018, Revised in May 2019
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

We develop a New Monetarist model with expenditure and unemployment risks that generates equilibria with non-degenerate distribution of money holdings. Distributional effects can overturn key insights of the model with degenerate distributions, e.g., the value of money depends on the income distribution; a one-time money injection raises aggregate real balances in the short run –price adjustments look sluggish; anticipated inflation can raise output and welfare; there can be a long-run trade-o¤ between inflation and unemployment. Distributional effects also generate a quantitatively significant aggregate demand channel through which transfers financed with money creation can raise employment, and productivity shocks are amplified.

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Document Object Identifier (DOI): 10.3386/w25220

 
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