Working Paper: NBER ID: w3145
Authors: Robert E. Hall
Abstract: This paper sets forth a simple general structural model of aggregate output, the interest rate, and the price level. The core of the model is the determination of the level of output as a product-market equilibrium, either competitive or oligopolistic, possible indeterminate because of thick-market externalities. Monetary non-neutrality can affect either product demand or product supply. In either case, monetary policy has leverage over output as well as the price level. The paper develops a two-diagram analysis intended to replace the aggregate demand-aggregate supply diagram.
Keywords: monetary nonneutrality; output volatility; aggregate demand; aggregate supply
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary nonneutrality (E49) | product demand (R22) |
| monetary nonneutrality (E49) | product supply (M11) |
| product demand (R22) | price level (E30) |
| product supply (inelastic) (J20) | price level (increase) (E30) |
| product supply (elastic) (J20) | equilibrium output (increase) (E23) |
| product supply (elastic) (J20) | price level (decrease) (E31) |
| monetary policy (E52) | output (C67) |
| monetary policy (E52) | price levels (E30) |