Abstract
This paper studies to what extent surprise money growth may affect output, employment,and real wages from the supply side. Under nominal wage contracts, we analyze the effects of monetary shocks in a limited participation model. We observe that unanticipated money growth increases real wages, employment and output while decreasing prices. This modelling approach to the monetary transmission mechanism, while different from the more traditional demand side explanations, is consistent with empirical findings like procyclical real wages and countercyclical prices.
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