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Anticipated Monetary Policy in a Cash-in-Advance Economy

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  • Benoit Carmichael

Abstract

This paper analyzes the effects of perfectly foreseen monetary policy within the framework of a standard cash-in-advance economy. Anticipated monetary policy is shown to have real effects by influencing inflationary expectations. In a cash-in-advance economy, an increase in the anticipated rate of inflation reduces the return to labor supply and induces a substitution away from time spent in the labor market. The paper analyzes the implication of this substitution for the time paths of output, prices, interest rates (real and nominal), and stock market prices.

Suggested Citation

  • Benoit Carmichael, 1989. "Anticipated Monetary Policy in a Cash-in-Advance Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 93-108, February.
  • Handle: RePEc:cje:issued:v:22:y:1989:i:1:p:93-108
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    References listed on IDEAS

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    1. Robin Boadway & Neil Bruce & Jack Mintz, 1984. "Taxation, Inflation, and the Effective Marginal Tax Rate on Capital in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 62-79, February.
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    Cited by:

    1. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
    2. Dow, James Jr., 1995. "The demand and liquidity effects of monetary shocks," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 91-115, August.
    3. Piotr Ciżkowicz & Marcin Hołda & Andrzej Rzońca, 2009. "Inflation and investment in monetary growth models," Bank i Kredyt, Narodowy Bank Polski, vol. 40(6), pages 9-40.
    4. Lawrence J. Christiano, 1991. "Modeling the liquidity effect of a money shock," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-34.
    5. Gomme, Paul, 1993. "Money and growth revisited : Measuring the costs of inflation in an endogenous growth model," Journal of Monetary Economics, Elsevier, pages 51-77.

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