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Some benefits of cyclical monetary policy

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  • Ed Nosal
  • Ricardo Cavalcanti

Abstract

Should monetary policy be cyclical? The debate around this question is old but has benefited very little from research on the pure theory of money. In our model, people trade in pairs, without double coincidence of wants and face seasonal fluctuations. Monetary policy is restricted to taxing money holdings in one period and redistributing in the next period the proceeds in a lump sum fashion. We demonstrate that under some very general conditions the cyclical creation and destruction of money is benefical to society

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 159.

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Date of creation: 2004
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Handle: RePEc:red:sed004:159

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: seasonal fluctuations; money creation and destruction;

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References

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  1. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
  2. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, Econometric Society, vol. 54(1), pages 23-45, January.
  3. Ricardo O. Cavalcanti, 2004. "A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright," Economic Theory, Springer, Springer, vol. 24(4), pages 769-788, November.
  4. Cavalcanti, Ricardo & Erosa, Andres & Temzelides, Ted, . "Private Money and Reserve Management in a Random Matching Model," Working Papers, University of Iowa, Department of Economics 97-17, University of Iowa, Department of Economics, revised Sep 1997.
  5. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers, Queen's University, Department of Economics 930, Queen's University, Department of Economics.
  6. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report, Federal Reserve Bank of Minneapolis 346, Federal Reserve Bank of Minneapolis.
  7. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
  8. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
  9. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
  10. Li, Victor E, 1995. "The Optimal Taxation of Fiat Money in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 927-42, November.
  11. Deviatov Alexei & Wallace Neil, 2001. "Another Example in which Lump-sum Money Creation is Beneficial," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-22, February.
  12. Sargent, Thomas J & Wallace, Neil, 1982. "The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1212-36, December.
  13. Miron, Jeffrey A, 1986. "Financial Panics, the Seasonality of the Nominal Interest Rate, and theFounding of the Fed," American Economic Review, American Economic Association, American Economic Association, vol. 76(1), pages 125-40, March.
  14. Cavalcanti, Ricardo de Oliveira, 2003. "A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright," Economics Working Papers (Ensaios Economicos da EPGE) 476, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  15. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
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Citations

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Cited by:
  1. Ricardo Cavalcanti & Ed Nosal, 2007. "Counterfeiting as private money in mechanism design," Working Paper 0716, Federal Reserve Bank of Cleveland.
  2. Flôres Junior, Renato Galvão, 2006. "Dois ensaios sobre diversidade cultural e o comércio de serviços," Economics Working Papers (Ensaios Economicos da EPGE) 622, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  3. Aloisio Araujo & Mario Pascoa & Juan Pablo Torres-Martinez, 2005. "Bubbles, collateral and monetary equilibrium," Textos para discussão, Department of Economics PUC-Rio (Brazil) 513, Department of Economics PUC-Rio (Brazil).
  4. Monteiro, Paulo Klinger, 2004. "First-Price auction symmetric equlibria with a general distribution," Economics Working Papers (Ensaios Economicos da EPGE) 568, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  5. Cysne, Rubens Penha, 2006. "An Intra-Household Approach to the Welfare Costs of Inflation (Revised Version, Forthcoming 2006, Estudos Econômicos)," Economics Working Papers (Ensaios Economicos da EPGE) 612, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Guillaume Rocheteau, 2011. "The cost of inflation: a mechanism design approach," Working Paper 1103, Federal Reserve Bank of Cleveland.
  7. Cysne, Rubens Penha, 2006. "Income Inequality in a Job-Search Model With Heterogeneous Discount Factors (Revised Version, Forthcoming 2006, Revista Economia)," Economics Working Papers (Ensaios Economicos da EPGE) 611, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  8. Renato G. Fl�res & Maria Paula Fontoura & Rog�rio Guerra Santos, 2007. "Foreign Direct Investment Spillovers in Portugal: Additional Lessons from a Country Study," European Journal of Development Research, Taylor and Francis Journals, Taylor and Francis Journals, vol. 19(3), pages 372-390.
  9. Hu, Tai-Wei & Rocheteau, Guillaume, 2013. "On the coexistence of money and higher-return assets and its social role," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(6), pages 2520-2560.
  10. Rivano, Ricardo de Oliveira & Wallace, Neil, 2006. "New models of old(?) payment questions," Economics Working Papers (Ensaios Economicos da EPGE) 619, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  11. Flôres Junior, Renato Galvão & Watanuki, Masakazu, 2006. "Integration Options for Mercosul - An Investigation Using the AMIDA Model," Economics Working Papers (Ensaios Economicos da EPGE) 610, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  12. Flôres Junior, Renato Galvão, 2006. "The Diversity of Diversity: further methodological considerations on the use of the concept in cultural economics," Economics Working Papers (Ensaios Economicos da EPGE) 626, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  13. Araújo, Fabio & Issler, João Victor & Fernandes, Marcelo, 2006. "A Stochastic Discount Factor Approach to Asset Pricing Using Panel Data," Economics Working Papers (Ensaios Economicos da EPGE) 628, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  14. Ricardo de O. Calacanti, 2010. "Inside-money theory after Diamond and Dybvig," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue 1Q, pages 59-82.

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