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A model in which monetary policy is about money

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  • Deviatov, Alexei
  • Wallace, Neil
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    Abstract

    Optimal monetary policy is studied in a model with (i) heterogeneity in the degree to which different people are monitored (have publicly known histories); (ii) idiosyncratic shocks that give rise to heterogeneity in earning and spending realizations; and (iii) central-bank intervention in a "market" in claims or credit in which the participants are those who are heavily monitored. A special case of the model has everyone perfectly monitored. In that case, there is no role for money and no role for central-bank intervention. In the example displayed with imperfect monitoring, optimal intervention is not simple.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Monetary Economics.

    Volume (Year): 56 (2009)
    Issue (Month): 3 (April)
    Pages: 283-288

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    Handle: RePEc:eee:moneco:v:56:y:2009:i:3:p:283-288

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    Web page: http://www.elsevier.com/locate/inca/505566

    Related research

    Keywords: Monetary policy Search Central-bank intervention;

    References

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    1. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
    2. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    3. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
    4. Joseph M. Ostroy, 1972. "The Informational Efficiency of Monetary Exchange," UCLA Economics Working Papers 021, UCLA Department of Economics.
    5. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
    6. Deviatov Alexei, 2006. "Money Creation in a Random Matching Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-20, December.
    7. Zhu, Tao, 2008. "An overlapping-generations model with search," Journal of Economic Theory, Elsevier, vol. 142(1), pages 318-331, September.
    8. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
    9. Alexei Deviatov, 2006. "Money Creation in a Random Matching Model," Working Papers w0081, Center for Economic and Financial Research (CEFIR).
    10. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
    11. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
    12. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
    13. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-44, December.
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    Cited by:
    1. Sanches, Daniel & Williamson, Stephen, 2010. "Money and credit with limited commitment and theft," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1525-1549, July.

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