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Optimal intervention in a random‐matching model of money

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  • Wataru Nozawa
  • Hoonsik Yang

Abstract

We numerically find optimal transfer scheme in the Shi–Trejos–Wright model with extended upper bounds on money holdings. The choice of upper bound matters for the optimal policy as some potentially beneficial transfer schemes cannot be studied under small upper bounds. Money creation (and accompanying inflation) becomes optimal in more examples when the upper bound on money holdings is larger, and the type of optimal transfer depends on the parameters in utility function. This result is in line with the conjecture of Wallace, which says that there generically exists an inflation‐financed transfer scheme that improves welfare over no intervention in pure‐currency economies.

Suggested Citation

  • Wataru Nozawa & Hoonsik Yang, 2021. "Optimal intervention in a random‐matching model of money," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 721-735, October.
    • Handle: RePEc:bla:buecrs:v:73:y:2021:i:4:p:721-735
    DOI: 10.1111/boer.12270
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    References listed on IDEAS

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