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- Publisher
- World Scientific Publishing Company
- Copyright
- Copyright ©
- ISSN
- 0217-5908
- eISSN
- 1793-6837
- DOI
- 10.1142/S0217590814500374
- Publisher site
- See Article on Publisher Site
Abstract
The global financial crisis of 2008 challenges some relevant aspects of macroeconomic theory such as the neutrality of money. This paper shows that this neutrality is based on the unrealistic assumption of perfect competition. Relaxing this alone (without time lags, price rigidities, menu costs and other frictions) makes money no longer necessarily neutral and hence makes financial crises and institutions much more important. The presence of increasing returns to scale at the firm level and to specialization at the economy level due to the division of labor also makes finance much more important than suggested by traditional economics.
Journal
The Singapore Economic Review – World Scientific Publishing Company
Published: Dec 1, 2014
Keywords: Finance financial institutions financial crisis money supply macroeconomics