MONEY SUPPLY VARIABILITY IN A MACRO MODEL OF MONOPOLISTIC COMPETITION

The effects of changes in money supply variability are examined for a macro model of monopolistic competition. Increases in money supply variability raise demand uncertainty causing individual firms to produce more for inventory. In addition, expected profits decrease, inducing a number of firms to leave the economy. Aggregate income then falls in spite of an increase in firm‐level production. The result on aggregate income is standard, but the …