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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 shock through two real propagation channels: dynamic complementarities and time-varying capital utilization. The findings for an economy with intertemporal externalities are: (1) An otherwise transient liquidity shock will have real effects on output for several years; (2) time-varying capital utilization strongly augments this propagation; (3) the real effects of monetary shocks last longer when external productivity depreciates faster; and (4) nominal prices respond more sluggishly to a change in the money supply when there is a strong real propagation channel.

Keywords

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

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