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Nonneutrality of Money in Dispersion: Hume Revisited

Jin, Gu and Zhu, Tao (2017): Nonneutrality of Money in Dispersion: Hume Revisited.

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Abstract

For a class of standard and widely-used preferences, a one-shot money injection in a standard matching model can induce a significant and persistent output response by dispersing the distribution of wealth. Decentralized trade matters for both persistence and significance. In the presence of government bonds the injection has a liquidity effect and the inflation rate right following the injection may be below the steady-state rate level.

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