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The Optimal Taxation of Fiat Money in Search Equilibrium

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Li, Victor E
Abstract

This paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money. Since buyers with money must invest effort or search intensity to contact sellers with goods, a natural trading externality arises. Given a sufficiently productive economy, search efforts will be too low relative to social efficiency. This provides a welfare improving role for policies which tax money balances. The nature of this role is explored and its implications for optimal monetary policy discussed. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 36 (1995)
Issue (Month): 4 (November)
Pages: 927-42
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Handle: RePEc:ier:iecrev:v:36:y:1995:i:4:p:927-42

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  1. Xavier Cuadras-Morató, 1997. "Can ice cream be money?: Perishable medium of exchange," Journal of Economics, Springer, vol. 66(2), pages 103-125, June. [Downloadable!] (restricted)
  2. repec:bep:macadv:v:1:y:2001:i:advances/1/1:p:1001-1001 is not listed on IDEAS
  3. Jun Zhang & Haibin Wu, 2004. "Money, Technology Choice and Pattern of Exchange in Search Equilibrium," Econometric Society 2004 North American Summer Meetings 212, Econometric Society. [Downloadable!]
  4. Guillaume Rocheteau & Randall Wright, 2003. "Inflation and Welfare in Models with Trading Frictions," PIER Working Paper Archive 03-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  5. Marchesiani, Alessandro & Senesi, Pietro, 2007. "Money and Nominal Bonds," MPRA Paper 9417, University Library of Munich, Germany. [Downloadable!]
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  6. Ben R. Craig & Christopher J. Waller, 2000. "Dual-currency economies as multiple-payment systems," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-13. [Downloadable!]
  7. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, . "Friedman Meets Hosios: Efficiency in Search Models of Money," IEW - Working Papers iewwp154, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  8. Waller, Christopher J. & Craig, Ben, 2001. "Currency Portfolios and Currency Exchange in a Search Economy," Discussion Paper Series 1: Economic Studies 2001,15, Deutsche Bundesbank, Research Centre. [Downloadable!]
  9. Miquel Faig, 2001. "A Search Theory of Money and Commerce with Neoclassical Production," Working Papers faig-01-01, University of Toronto, Department of Economics. [Downloadable!]
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  10. Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland. [Downloadable!]
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  11. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28. [Downloadable!]
  12. Antoine Martin & Stacey L. Schreft, 2003. "Currency competition : a partial vindication of Hayek," Research Working Paper RWP 03-04, Federal Reserve Bank of Kansas City. [Downloadable!]
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  13. repec:bep:macadv:v:1:y:2001:i:advances/1/1:p:1020-1020 is not listed on IDEAS
  14. Ben Craig & Guillaume Rocheteau, 2006. "Inflation and welfare: a search approach," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jan. [Downloadable!]
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  15. Huberto M. Ennis, 2005. "Avoiding the inflation tax," Working Paper 05-10, Federal Reserve Bank of Richmond.
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  16. Ritter, Moritz, 2007. "The Optimum Quantity of Money Revisited: Distortionary Taxation in a Search Model of Money," MPRA Paper 1973, University Library of Munich, Germany. [Downloadable!]
  17. Ben Craig & Christopher J. Waller, 1999. "Currency portfolios and nominal exchange rates in a dual currency search economy," Working Paper 9916, Federal Reserve Bank of Cleveland. [Downloadable!]
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  18. Thomas Cone, 2007. "Information technology and the welfare cost of anticipated inflation," Computational Economics, Springer, vol. 30(1), pages 1-18, August. [Downloadable!] (restricted)
  19. Cavalcanti, Ricardo de Oliveira & Nosal, Ed, 2005. "Some Benefits of Cyclical Monetary Policy," Economics Working Papers (Ensaios Economicos da EPGE) 603, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  20. Ricardo de O. Cavalcanti & Ed Nosal, 2005. "Some benefits of cyclical monetary policy," Working Paper 0511, Federal Reserve Bank of Cleveland. [Downloadable!]
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