Essential interest-bearing money
AbstractI examine optimal monetary policy in a Lagos and Wright [A unified framework for monetary theory and policy analysis, J. Polit. Econ. 113 (2005) 463?484] model where trade is centralized and all exchange is voluntary. I identify a class of incentive feasible policies that improve welfare beyond what is achievable with zero intervention. Any policy in this class necessarily entails a non-negative inflation rate and a strictly positive nominal interest rate. Despite the absence of a lump-sum tax instrument, there exists an incentive-feasible policy that implements the first-best allocation.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-044.
Date of creation: 2009
Date of revision:
Other versions of this item:
- David Andolfatto, 2008. "Essential Interest-Bearing Money," EIEF Working Papers Series 0802, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
- David Andolfatto, 2007. "Essential Interest-Bearing Money," Discussion Papers dp07-16, Department of Economics, Simon Fraser University.
- Andolfatto, David, 2007. "Essential Interest-Bearing Money," MPRA Paper 4780, University Library of Munich, Germany.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-03 (All new papers)
- NEP-CBA-2009-10-03 (Central Banking)
- NEP-DGE-2009-10-03 (Dynamic General Equilibrium)
- NEP-MON-2009-10-03 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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tecipa-212, University of Toronto, Department of Economics.
- Shouyong Shi, 2006. "Welfare improvement from restricting the liquidity of nominal bonds," 2006 Meeting Papers 245, Society for Economic Dynamics.
- David Andolfatto, 2007.
"Incentives and the Limits to Deflationary Policy,"
dp07-14, Department of Economics, Simon Fraser University.
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