Money as Friction: Conceptual Dissonance in Woodford's Interest and Prices
AbstractIn Interest and Prices Woodford employs a frictionless model to derive nominal interest rate rules that can be applied by central banks to achieve price level stability. But frictionless models are Walrasian general equilibrium models that preclude any role for money. Furthermore frictionless model have no role for nominal values or the price level and therefore no role for a central bank. Consequently, conceptual anomalies arise in Woodford's attempt to analyse questions of monetary theory and policy that are precluded by construction in frictionless models. In some states of the model money is converted into a 'friction', contra economic theory.
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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2008-03.
Length: 35 pages
Date of creation: 2008
Date of revision:
frictionless models; time-0 auction; 'monetary frictions';
Find related papers by JEL classification:
- B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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