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Monetary shocks, agency costs, and business cycles

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  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

This paper integrates money into a real model of agency costs. Money is introduced by imposing a cash-in-advance constraint on a subset of transactions. The underlying real model is a standard real-business-cycle model modified to include endogenous agency costs. The paper?s chief contribution is to demonstrate how the monetary transmission mechanism is altered by these endogenous agency costs. In particular, do agency costs amplify and/or propagate monetary shocks?

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Monetary shocks, agency costs, and business cycles," Working Papers (Old Series) 0011, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0011
    DOI: 10.26509/frbc-wp-200011
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    References listed on IDEAS

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    1. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
    2. Fuerst, Timothy S, 1995. "Monetary and Financial Interactions in the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1321-1338, November.
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    Keywords

    Business cycles; Monetary policy;

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