Household response to a money rain: Real and portfolio balance effects reconsidered |
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Authors: | Alan C Hess |
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Institution: | Securities and Exchange Commission, Washington, DC 20549, U.S.A.;University of Washington, Seattle, WA 98195, U.S.A. |
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Abstract: | In order for changes in the stock of money to lead to changes in economic activity, production and spending units such as households and firms must respond to changes in the money supply. With respect to wealth effects on households, the real balance effect on consumption is thought to be empirically small. This puts the burden on portfolio balance and labor supply effects. Labor supply is shown to decrease in response to an increase in the money supply, and depending on the extent of markets, portfolio balance effects may be nonexistent. |
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