Monetary policy effects in the short and long run under alternative wealth assumptions

In this paper an ad hoc deterministic macroeconomicmodel, assuming economic agents possess rational expectations, is developed. Emphasis is placed upon the long run nature of the adjustment process, through inclusion of capital stock accumulation and current account balance considerations, arising from an expansion in the monetary growth rate. The significance of wealth for the model's steady s ta te and dynamic properties is emphasised, as well as upon the adjustment process itself. It is concluded that dynamic stability requires the inclusion of wealth in the output demand equation, and where this is the case a monetary growth expansion prod u ce s rea l e ffe c ts during the adjustment process as well as in the long run steady state. The additional inclusion of wealth in the money demand equation produces marginal differences in the a d ju s tm e n t of the macroeconomic variables emphasised, during both the adjustment process and in steady state.