European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No WP1304: Money in the Production Function: a new Keynesian DSGE perspective

Jonathan Benchimol ()
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Jonathan Benchimol: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex, FRANCE

Abstract: This paper proposes a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where real money balances enter the production function. By using a Bayesian analysis, our model shows that money is not an omitted input to the production process and rejects the decreasing returns to scale hypothesis. Our simulations suggest that money plays a negligible role in the dynamics of output and inflation, despite its inclusion in the production function. In addition, we introduce the flexible-price real money balances concept.

Keywords: Money in the production function; DSGE; Bayesian estimation

JEL-codes: E23; E31; E51

33 pages, February 2013

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