Template-Type: ReDIF-Paper 1.0

Author-Name: Eric Kam 

Author-X-Name-First: Eric
Author-X-Name-Last: Kam
Author-Email: erickam@ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada

Author-Name: John Smithin
Author-X-Name-First: John
Author-X-Name-Last: Smithin
Author-Email: jsmithin@yorku.ca
Author-Workplace-Name: Department of Economics, York University, Toronto, Canada

Author-Name: Aqeela Tabassum
Author-X-Name-First: Aqeela

Author-X-Name-Last: Tabassum
Author-Email: aqeela.tabassum@humber.ca

Author-Workplace-Name: The Business School, Humber College, Toronto, Canada 

Title: The Long-Run Non-Neutrality of Monetary Policy: A General Statement in a Dynamic General Equilibrium Model
Abstract:  This paper provides an explanation of the long-run neutrality of monetary policy in a
dynamic general equilibrium model with micro-foundations. If the rate of time preference
is endogenous there is no natural rate of interest. Therefore, if the central bank follows an
interest rate rule this will affect the real rate of interest in financial markets and thereby the
real economy. In principle, there is a negative relationship between the real rate of interest
and the rate of inflation. This turns out to be nothing other than the historical “forced
savings effect”, or the twentieth century Mundell-Tobin effect.
Length: 23 pages

Creation-Date: 2018-09
Number: 074

File-URL: http://economics.ryerson.ca/workingpapers/wp074.pdf

File-Format: Application/pdf

Handle: RePEc:rye:wpaper:wp074