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Optimal Monetary Policy in a Cash-in-Advance Economy

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  • Fuerst, Timothy S

Abstract

The issue of optimal monetary policy within a particular general equilibrium model of the monetary transmission mechanism is addressed. The model analyzed is a member of the recent class of liquidity models of the monetary business cycle. The nature of the trading frictions that define these models introduces a role for activist monetary policy. In particular, to the extent that the central bank can adjust liquidity more rapidly than the private sector, there is a welfare-improving role for monetary policy. In contrast to traditional policy prescriptions for aggregate demand management, this is a prescription for liquidity management. Copyright 1994 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 32 (1994)
Issue (Month): 4 (October)
Pages: 582-96

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Handle: RePEc:oup:ecinqu:v:32:y:1994:i:4:p:582-96

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Cited by:
  1. Charles T. Carlstrom & Timothy S. Fuerst, 1995. "Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy," Working Paper 9504, Federal Reserve Bank of Cleveland.
  2. Martin Eichenbaum & Lawrence J. Christiano, 1992. "Liquidity Effects, Monetary Policy, and the Business Cycle," NBER Working Papers 4129, National Bureau of Economic Research, Inc.
  3. Harold L. Cole & Lee E. Ohanian, 1998. "The demand for money and the nonneutrality of money," Staff Report 246, Federal Reserve Bank of Minneapolis.
  4. Aoki, Yoshimasa & Tomoda, Yasunobu, 2009. "Optimal money supply in models with endogenous discount factor," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 798-810, August.
  5. Cole, Harold L. & Ohanian, Lee E., 2002. "Shrinking money: the demand for money and the nonneutrality of money," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 653-686, May.

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