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A suggestion for further simplifying the theory of money

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  • John Bryant
  • Neil Wallace
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    Abstract

    Our suggestion consists of three postulates: assets are valued only in terms of their payoffs, perfect foresight, and complete and costless markets under laissez-faire. Together these postulates imply that the crucial anomaly, rate-of-return dominance of “money,” is to be explained by legal restrictions. ; Our defense of these postulates is two-fold. First we compare them with existing alternative theories. Second, we provide an illustrative model which : (a) is consistent with the postulates, (b) implies rate-of-return dominance under suitable legal restrictions, and (c) addresses monetary policy questions with standard welfare economics and, in particular, rationalizes in terms of price discrimination a debt management policy that “tailors debt issues to the needs of the market.”

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 62.

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    Date of creation: 1980
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    Handle: RePEc:fip:fedmsr:62

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    References

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    1. Martins, Marco Antonia Campos, 1980. "A Nominal Theory of the Nominal Rate of Interest and the Price Level," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 174-85, February.
    2. Hahn, Frank H, 1973. "On Transaction Costs, Inessential Sequence Economies and Money," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 449-61, October.
    3. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
    4. Bryant, John, 1980. " Nontransferable Interest-Bearing National Debt," Journal of Finance, American Finance Association, vol. 35(4), pages 1027-31, September.
    5. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
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    Cited by:
    1. Buiter, Willem H, 2004. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," CEPR Discussion Papers 4202, C.E.P.R. Discussion Papers.
    2. Nobuhiro Kiyotaki & Randall Wright, 1989. "A contribution to the pure theory of money," Staff Report 123, Federal Reserve Bank of Minneapolis.
    3. Joseph E. Stiglitz, 1983. "On the Relevance or Irrelevance of Public Financial Policy: Indexation,Price Rigidities and Optimal Monetary Policy," NBER Working Papers 1106, National Bureau of Economic Research, Inc.
    4. David Andolfatto, 2005. "On the Coexistence of Money and Bonds," 2005 Meeting Papers 9, Society for Economic Dynamics.
    5. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
    6. Preston J. Miller, 1982. "A time series analysis of federal budget policy," Working Papers 213, Federal Reserve Bank of Minneapolis.
    7. Walsh, Carl E, 1984. "Interest Rate Volatility and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 133-50, May.
    8. Joseph E. Stiglitz, 1983. "On the Relevance or Irrelevance of Public Financial Policy," NBER Working Papers 1057, National Bureau of Economic Research, Inc.
    9. Thomas J. Sargent & Neil Wallace, 1981. "The real bills doctrine vs. the quantity theory: a reconsideration," Staff Report 64, Federal Reserve Bank of Minneapolis.
    10. Preston J. Miller, 1982. "Fiscal policy in a monetarist model," Staff Report 67, Federal Reserve Bank of Minneapolis.

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