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Working Paper

Monetary Shocks, Agency Costs, and Business Cycles

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This paper integrates money into a real model of agency costs. Money is introduced by imposing a cash-in-advance constraint on a subset of transactions. The underlying real model is a standard real-business-cycle model modified to include endogenous agency costs. The paper's chief contribution is to demonstrate how the monetary transmission mechanism is altered by these endogenous agency costs. In particular, do agency costs amplify and/or propagate monetary shocks?
08.01.2000ISSN 2573-7953 WP 00-11DOI 10.26509/frbc-wp-200011
Keywords business fluctuations, financial markets, macroeconomy, monetary policy
JEL Classification Codes E32, E44, E50

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Carlstrom, Charles T., and Timothy S. Fuerst. 2000. “Monetary Shocks, Agency Costs, and Business Cycles.” Federal Reserve Bank of Cleveland, Working Paper No. 00-11. https://doi.org/10.26509/frbc-wp-200011