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Optimal Monetary Policy in a Pure Currency Economy with Heterogenous Agents

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Abstract

This paper shows that, in a pure currency economy with heterogeneous agents and multiple commodities, a pecuniary externality plays a key role in making the equilibrium allocation constrained inefficient. Monetary policy intervention can help improve matters.

Suggested Citation

  • Nicola Amendola & Leo Ferraris & Fabrizio Mattesini, 2016. "Optimal Monetary Policy in a Pure Currency Economy with Heterogenous Agents," CEIS Research Paper 394, Tor Vergata University, CEIS, revised 02 Feb 2017.
    • Handle: RePEc:rtv:ceisrp:394
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    References listed on IDEAS

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    1. Levine, David K., 1991. "Asset trading mechanisms and expansionary policy," Journal of Economic Theory, Elsevier, vol. 54(1), pages 148-164, June.
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    7. John Moore, 2013. "Pecuniary Externality through Credit Constraints: Two Examples without Uncertainty," Edinburgh School of Economics Discussion Paper Series 233, Edinburgh School of Economics, University of Edinburgh.
    8. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-777, October.
    9. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990. "The optimum quantity of money revisited," Working Papers 404, Federal Reserve Bank of Minneapolis.
    10. Paola Boel & Christopher J. Waller, 2015. "On the Theoretical Efficacy of Quantitative Easing at the Zero Lower Bound," Working Papers 2015-027, Federal Reserve Bank of St. Louis.
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    More about this item

    Keywords

    Money; Heterogeneity; Pecuniary Externality; Monetary Policy;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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