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Real Propagation of Monetary Shocks:Dynamic Complementarities and Capital Utilization

Published online by Cambridge University Press:  01 September 1999

David Cook
David Cook
Affiliation:
Hong Kong University of Science & Technology
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Abstract

This paper studies the dynamic propagation of a liquidity shockthrough two real propagation channels: dynamiccomplementarities and time-varying capitalutilization. The findings for an economywith intertemporal externalities are: (1) An otherwise transient liquidityshock will have real effects on output for several years; (2) time-varyingcapital utilization strongly augments this propagation; (3) the realeffects of monetary shocks last longer when external productivitydepreciates faster; and (4) nominal prices respond more sluggishly to achange in the money supply when there isa strong real propagation channel.

Keywords

Liquidity EffectIntertemporal ExternalitiesPropagationCapital Utilization

Information

Type
Research Article
Information
Macroeconomic Dynamics , Volume 3 , Issue 3 , September 1999 , pp. 368 - 383
Copyright
© 1999 Cambridge University Press

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