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Financial Constraints, Aggregate Supply, and the Monetary Transmission Mechanism
Author(s) -
Delli Gatti Domenico,
Gallegati Mauro
Publication year - 1997
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00046
Subject(s) - economics , monetary policy , monetary economics , interest rate , monetary base , money supply , endogenous money , credit channel , control (management) , proposition , macroeconomics , inflation targeting , philosophy , management , epistemology
We derive two propositions identifying the conditions for monetary policy effectiveness due to the interaction of real and financial markets. The first proposition shows that, in a regime of endogenous money, monetary policy is effective even if policy moves are anticipated because changes in the interest rate impinge upon long‐run output. The second proposition shows that in a regime of exogenous money—in which central banks control base money and structural parameters affecting the behaviour of banks—monetary policy affects output if its impact on money is different from its impact on credit.