This paper attempts to provide a step towards understanding the role of financial intermediaries (quot;banksquot;) in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of...

The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed. We reconsider both propositions...

The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of...

Adverse shocks to the economy may be amplified by worsening credit-market conditions-- the financial 'accelerator'. Theoretically, we interpret the financial accelerator as resulting from endogenous changes over the business cycle in the agency costs of lending. An implication of the theory is...

This paper employs monthly, industry-level data in a study of Depression-era labor markets. The underlying analytical framework is one in which, as in Lucas (1970), employers can vary total labor input not only by changing the number of workers but also by varying the length of the work-week....

First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks...

Standard explanations of the bivariate correlation of money and income attribute this correlation to an inability of agents to discriminate in the short run between real and nominal sources of price shocks. This paper is an empirical comparison of the standard explanation with two alternatives:...

Recent research has provided strong circumstantial evidence for the proposition that sustained deflation -- the result of a mismanaged international gold standard -- was a major cause of the Great Depression of the 1930s. Less clear is the mechanism by which deflation led to depression. In this...

This paper employs monthly, industry-level data in a study of Depression-era labor markets. The underlying analytical framework is one in which, as in Lucas (1970), employers can vary total labor input not only by changing the number of workers but also by varying the length of the work-week....

This paper examines the relationship between inflation, exchange rates, and the pattern of international trade and payments in a small economy with utility-maximizing agents and a transactions demand for money. Fully anticipated inflation has real effects in the model through its role as a tax...