Money Allocation, Unemployment, and Monetary Policy

40 Pages Posted: 28 Apr 2020

See all articles by Chao He

Chao He

East China Normal University (ECNU)

Min Zhang

East China Normal University (ECNU)

Date Written: March 15, 2020

Abstract

Firms and consumers both hold significant amounts of money, and the firm share changes over time and is negatively correlated with inflation. While existing studies of monetary policy and unemployment only consider consumer money, we build a quantitative framework of money allocation between consumers and firms. The quantitative results show that incorporating firm money greatly amplifies the effect of monetary policy on unemployment, and that an increase in inflation reduces the firm money share. The positive spillover effect from consumer money to firm money proves quantitatively important in accounting for changes in firm money.

Keywords: firm money, money allocation, unemployment, monetary policy

JEL Classification: D83, E24, E41, E52, J64

Suggested Citation

He, Chao and Zhang, Min, Money Allocation, Unemployment, and Monetary Policy (March 15, 2020). Available at SSRN: https://ssrn.com/abstract=3569388 or http://dx.doi.org/10.2139/ssrn.3569388

Chao He

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

Min Zhang (Contact Author)

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

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