Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153275
Authors: 
Stracca, Livio
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 841
Abstract: 
This paper presents a dynamic general equilibrium model with sticky prices, in which "inside" money, made out of commercial banks’ liabilities, plays an active, structural role role. It is shown that, in such a model, an inside money shock has a well-defined meaning. A calibrated version of the model is shown to generate small, but non-negligible effects of inside money shocks on output and inflation. I also simulate the effect of a banking crisis in the model. Moreover, I find that it is optimal for monetary policy to react to such shocks, although reacting to inflation alone does not result in a significant welfare loss.
Subjects: 
deposit in advance constraint
dynamic general equilibrium models
Endogenous money
inside money
monetary policy
JEL: 
E43
Document Type: 
Working Paper

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