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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
Affiliation:
Hong Kong University of Science & Technology

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.

Information

Type
Research Article
Copyright
© 1999 Cambridge University Press

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