I argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential. The argument has two parts. First, I argue that models in which real balances are assumed to be productive--models with money in utility or production functions or with cash-in-advance constraints--contain hidden inconsistencies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effects of monetary shocks, the welfare cost of inflation, and the roles of inside and outside money. Copyright 2001 by American Economic 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): 42 (2001) Issue (Month): 4 (November) Pages: 847-69 Download reference. The following formats are available: HTML,
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