Capital Reallocation And Profit-And-Loss Monetary Policy
1 : LEMMA - Paris 2 University
Université Paris II - Panthéon-Assas
We study a steady-state monetary economy in which preference shocks give rise to the presence of idle capital. We introduce and analyze a new supply-side monetary policy idea, where the central bank aims to enhance the efficiency in the economy by reallocating idle capital from unproductive to productive agents, through the concept of profit-andloss sharing joint-venture as practiced in islamic banking. We construct a microfounded model of money and capital to examine how such a monetary policy improves welfare and output compared to "laissez-faire" and to "Friedman's rule" policy in an economy with lump-sum taxes.