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<p>Both New Classical and New Keynesian economists tend to ignore the supply-side effects of monetary policy. In order to investigate these effects, we propose a novel MIUP (money-in-the-utility-and-production-function) model by extending the standard New Keynesian framework. Our findings indicate that incorporating money into the production function helps capture the impacts of monetary policy on aggregate supply. The greater the real balances elasticity of output, the stronger the supply-side effects of monetary policy. When prices are sticky, easing monetary policy produces a positive supply-side effect that amplifies its positive demand-side effect on output. In contrast, when prices are flexible, monetary policy does not affect real variables.</p>

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Money in the Utility and Production Function: A DSGE Approach

  • 期刊论文

  • 发表日期：

    2025年9月30日

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  • Anxing Peng,
  • Zhuangyu Wei,
  • Xiaoling Yu

摘要

Both New Classical and New Keynesian economists tend to ignore the supply-side effects of monetary policy. In order to investigate these effects, we propose a novel MIUP (money-in-the-utility-and-production-function) model by extending the standard New Keynesian framework. Our findings indicate that incorporating money into the production function helps capture the impacts of monetary policy on aggregate supply. The greater the real balances elasticity of output, the stronger the supply-side effects of monetary policy. When prices are sticky, easing monetary policy produces a positive supply-side effect that amplifies its positive demand-side effect on output. In contrast, when prices are flexible, monetary policy does not affect real variables.