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Real Propagation of Monetary Shocks: Dynamic Complementarities and Capital Utilization

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  • Cook, David

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.

Suggested Citation

  • Cook, David, 1999. "Real Propagation of Monetary Shocks: Dynamic Complementarities and Capital Utilization," Macroeconomic Dynamics, Cambridge University Press, vol. 3(3), pages 368-383, September.
    • Handle: RePEc:cup:macdyn:v:3:y:1999:i:03:p:368-383_01
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    Cited by:

    1. Pedro Pablo Alvarez Lois, 2000. "Endogenous capacity utilization and the asymmetric effects of monetary policy," UFAE and IAE Working Papers 469.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Katharine S Neiss & Evi Pappa, 2002. "A monetary model of factor utilisation," Bank of England working papers 154, Bank of England.
    3. Alok Johri, 2009. "Delivering Endogenous Inertia in Prices and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 736-754, October.
    4. Jens Larsen & Katharine Neiss & Fergal Shortall, 2002. "Factor utilisation and productivity estimates for the United Kingdom," Bank of England working papers 162, Bank of England.
    5. Alok Johri, 2005. "Learning-by-doing and Endogenous Price-level Inertia," Department of Economics Working Papers 2005-02, McMaster University.
    6. Katharine S. Neiss & Evi Pappa, 2005. "Persistence without too much price stickiness: the role of variable factor utilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 231-255, January.
    7. Pedro P. Alvarez-Lois, 2005. "Production Inflexibilities and the Cost Channel of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 170-193, January.

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