TY - JOUR
T1 - Stochastic relation between money and capital in an economy with spatially separated markets
AU - Shi, Shouyong
N1 - Funding Information:
* Some portions of this article were included in a previously circulated paper, ``Money and capital in an economy with spatially separated markets.'' I am grateful to a referee for suggestions and to the Social Sciences and Humanities Research Council of Canada for financial support. All errors are solely mine.
PY - 1998/10
Y1 - 1998/10
N2 - This paper examines the stochastic relationship between money and capital in an economy with spatially separated markets. The new ingredient of the model is that trades between markets may be desirable but are eliminated by market separation. When this cross-market friction is operative, aggregate capital is negatively correlated with and only with contemporaneous money growth, given past capital stocks. When the cross-market friction is not operative, aggregate capital can be positively correlated with contemporaneous money growth and current money growth has direct predictive power on future aggregate capital through its effect on the distribution of capital among agents. Therefore, in a more fragmented economy, aggregate capital is more likely to be negatively correlated with money growth and more unpredictable by past money growth.Journal of Economic LiteratureClassification Numbers: E40, E50
AB - This paper examines the stochastic relationship between money and capital in an economy with spatially separated markets. The new ingredient of the model is that trades between markets may be desirable but are eliminated by market separation. When this cross-market friction is operative, aggregate capital is negatively correlated with and only with contemporaneous money growth, given past capital stocks. When the cross-market friction is not operative, aggregate capital can be positively correlated with contemporaneous money growth and current money growth has direct predictive power on future aggregate capital through its effect on the distribution of capital among agents. Therefore, in a more fragmented economy, aggregate capital is more likely to be negatively correlated with money growth and more unpredictable by past money growth.Journal of Economic LiteratureClassification Numbers: E40, E50
UR - http://www.scopus.com/inward/record.url?scp=0040092063&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0040092063&partnerID=8YFLogxK
U2 - 10.1006/redy.1998.0027
DO - 10.1006/redy.1998.0027
M3 - Article
AN - SCOPUS:0040092063
SN - 1094-2025
VL - 1
SP - 754
EP - 780
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 4
ER -