The Role of Monetary Shocks in Equilibrium Business Cycle Theory: Three Examples

Posted: 5 Jan 1999

See all articles by Thomas F. Cooley

Thomas F. Cooley

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Gary D. Hansen

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

This paper analyzes three equilibrium business cycle models that differ according to the mechanism through which monetary growth shocks affect the economy. These include models with inflation tax effects [as in Cooley and Hansen (1989, 1995)], with staggered nominal wage contracts [as in Cho and Cooley (1995)], and with unanticipated inflation effects [as in Lucas (1975) and Cooley and Hansen (1997)]. We review the most important monetary features of business cycles in post-war U.S. data and compare these with the same features of the artificial economies. Our goal is to identify characteristics of the business cycle that each mechanism helps to explain, the features that remain puzzling, and to describe how the form of the mechanism matters.

Note: This is a description of the paper and not the actual abstract.

JEL Classification: E32, E52

Suggested Citation

Cooley, Thomas F. and Hansen, Gary D., The Role of Monetary Shocks in Equilibrium Business Cycle Theory: Three Examples. European Economic Review, Vol. 42, 1998. Available at SSRN: https://ssrn.com/abstract=137195

Thomas F. Cooley (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

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Gary D. Hansen

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