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MONEY, SEARCH, AND BUSINESS CYCLES

Authors

  • S. Borağan Aruoba

    1. University of Maryland, U.S.A.
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    • The author thanks Randy Wright, the editor, and four anonymous referees for their insightful comments and David Arseneau, Sanjay Chugh, and Christopher Waller for helpful discussions. The usual disclaimer applies. The latest version and the appendix of this article are available at http://www.boraganaruoba.com. Please address correspondence to: S. Boragan Aruoba, Department of Economics, University of Maryland, College Park, MD 20742. Phone: +(301) 405-3508. Fax: +(301) 405-3542. E-mail: aruoba@econ.umd.edu.


  • Manuscript received December 2009; revised April 2010.

Abstract

Monetary models that specify explicit frictions to generate money demand have been developed over the last 20 years and have been used to address many questions. In this article, I investigate the short-run properties of a particular model considering a number of versions based on some modeling choices. All versions feature flexible prices. I find that in many aspects, both real and nominal, the model resembles other, more reduced-form models. Some variations of the model come closer to matching some key nominal facts than a reduced-form model. The model also generates counter cyclical markups, in line with the data.

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