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Money, Interest, and Policy: Dynamic General Equilibrium in a Non-Ricardian World

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  • Jean-Pascal Bénassy

    ()
    (National Center for Scientific Research)

Abstract

An important recent advancement in macroeconomics is the development of dynamic stochastic general equilibrium (DSGE) macromodels. The use of DSGE models to study monetary policy, however, has led to paradoxical and puzzling results on a number of central monetary issues including price determinacy and liquidity effects. In Money, Interest, and Policy, Jean-Pascal Bénassy argues that moving from the standard DSGE models--which he calls "Ricardian" because they have the famous "Ricardian equivalence" property--to another, "non-Ricardian" model would resolve many of these issues. A Ricardian model represents a household as a homogeneous family of infinitely lived individuals, and Bénassy demonstrates that a single modification--the assumption that new agents are born over time (which makes the model non-Ricardian)--can bridge the current gap between monetary intuitions and facts, on one hand, and rigorous modeling, on the other. After comparing Ricardian and non-Ricardian models, Bénassy introduces a model that synthesizes the two approaches, incorporating both infinite lives and births of new agents. He applies this model to a number of issues in monetary policy, namely liquidity effects, interest rate rules and price determinacy, global determinacy, the Taylor principle, and the fiscal theory of the price level. Finally, using a simple overlapping generations model, he analyzes optimal monetary and fiscal policies, with a special emphasis on optimal interest rate rules.

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Bibliographic Info

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This book is provided by The MIT Press in its series MIT Press Books with number 0262524937 and published in 2008.

Volume: 1
Edition: 1
ISBN: 0-262-52493-7
Handle: RePEc:mtp:titles:0262524937

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Web page: http://mitpress.mit.edu

Related research

Keywords: dynamic general equilibrium; fiscal policies; interest rate rules; liquidity effects;

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Cited by:
  1. Marco Airaudo & Salvatore Nisticò & Luis-Felipe Zanna, 2014. "Learning, Monetary Policy and Asset Prices," Working Papers 4/14, Sapienza University of Rome, DISS.
  2. Tovar, Camilo Ernesto, 2008. "DSGE Models and Central Banks," Economics Discussion Papers 2008-30, Kiel Institute for the World Economy.
  3. Piergallini Alessandro & Rodano Giorgio, 2012. "Public Debt, Distortionary Taxation, and Monetary Policy," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 225-248.

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