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An Attractive Monetary Model with Surprising Implications for Optima: Two Examples

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  • Neil Wallace

Abstract

Ex ante optima are described for two examples of a monetary model with random meetings, some perfectly monitored people, and some nonmonitored people. One example describes optimal inflation, the other optimal seasonal policy. Although the numerical examples are arbitrary in most respects, the results are consistent with three general conclusions: if the model is known, then intervention is desirable; even the qualitative aspects of optimal intervention are not obvious; and optimal intervention depends on the details of the model. The results are therefore reminiscent of the conclusions of second-best theory.

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  • Neil Wallace, 2014. "An Attractive Monetary Model with Surprising Implications for Optima: Two Examples," Quarterly Review, Federal Reserve Bank of Minneapolis, issue March, pages 1-16.
    • Handle: RePEc:fip:fedmqr:00001
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    References listed on IDEAS

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    1. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-1344, December.
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    9. Huang, Pidong & Igarashi, Yoske, 2011. "A comment on: 'Efficient propagation of shocks and the optimal return on money'," MPRA Paper 51206, University Library of Munich, Germany.
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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