A supply side limited participation model of monetary transmission mechanism

Abstract

This thesis is a theoretical investigation of how money growth affects output, employment, consumption and real wages from a supply side channel. We analyze the effects of monetary shocks under deterministic and stochastic environments in a limited participation model with competitive and sticky wages. We find that anticipated money growth decreases output, employment, consumption, working capital and real wages, but increases profitability of the firms. Unanticipated money growth under sticky wages increases employment, output and consumption, decreases price and profits. The main contribution of this thesis to the literature is that when sticky nominal wages are included in a limited participation model with inelastic labor supply stylized business cycle facts can be obtained