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Money as a coordination device

Author

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  • Wibaut, Quentin

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper examplifies in a simple general equilibrium model the important role played by the monetary policy when there are strategic interactions bearing on nominal variables. It shows that the common notion of money neutrality is misleading in this context. Indeed, linear homogeneity in the money stock for all nominal variables does not imply that the money supply cannot affect real variables. Though in this case the money stock is neutral, the monetary rule (according to which money is supplied) alters strategic interactions. As a result, money can be used to resolve (weak) coordination failures.

Suggested Citation

  • Wibaut, Quentin, 1997. "Money as a coordination device," LIDAM Discussion Papers IRES 1997023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1997023
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/9723.pdf
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    Cited by:

    1. Holden, Steinar, 2005. "Monetary regimes and the co-ordination of wage setting," European Economic Review, Elsevier, vol. 49(4), pages 833-843, May.
    2. Holden,S., 1999. "Wage setting under different monetary regimes," Memorandum 12/1999, Oslo University, Department of Economics.
    3. Quentin Wibaut, 2001. "Centralisation de la formation des salaires en économie ouverte et politique monétaire," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 103-115.

    More about this item

    Keywords

    Monetary Policy; Imperfect Competition;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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