A Framework for Studying Monetary Non-Neutrality
31 Pages Posted: 11 Sep 2001 Last revised: 7 Aug 2022
Date Written: October 1989
Abstract
This paper sets forth a simple general structural model of aggregate output, the interest rate, and the price level. The core of the model is the determination of the level of output as a product-market equilibrium, either competitive or oligopolistic, possible indeterminate because of thick-market externalities. Monetary non-neutrality can affect either product demand or product supply. In either case, monetary policy has leverage over output as well as the price level. The paper develops a two-diagram analysis intended to replace the aggregate demand-aggregate supply diagram.
Suggested Citation: Suggested Citation