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A model in which monetary policy is about money

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  • Deviatov, Alexei
  • Wallace, Neil

Abstract

Optimal monetary policy is studied in a model with (i) heterogeneity in the degree to which different people are monitored (have publicly known histories); (ii) idiosyncratic shocks that give rise to heterogeneity in earning and spending realizations; and (iii) central-bank intervention in a "market" in claims or credit in which the participants are those who are heavily monitored. A special case of the model has everyone perfectly monitored. In that case, there is no role for money and no role for central-bank intervention. In the example displayed with imperfect monitoring, optimal intervention is not simple.

Suggested Citation

  • Deviatov, Alexei & Wallace, Neil, 2009. "A model in which monetary policy is about money," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 283-288, April.
    • Handle: RePEc:eee:moneco:v:56:y:2009:i:3:p:283-288
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    References listed on IDEAS

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    Cited by:

    1. Sanches, Daniel & Williamson, Stephen, 2010. "Money and credit with limited commitment and theft," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1525-1549, July.
    2. Daniel R. Sanches, 2013. "Banking crises and the role of bank coalitions," Working Papers 13-28, Federal Reserve Bank of Philadelphia.
    3. Bertolai, Jefferson Donizeti Pereira & Cavalcanti, Ricardo de Oliveira, 2013. "Opposite policy implications in the theory of money and banking," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 67(4), November.
    4. Daniel R. Sanches, 2013. "On the welfare properties of fractional reserve banking," Working Papers 13-32, Federal Reserve Bank of Philadelphia.
    5. Wei Qiao & Neil Wallace, 2021. "Optimal Provision of Costly Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(2-3), pages 535-554, March.
    6. Ricardo de O. Cavalcanti, 2010. "Inside-money theory after Diamond and Dybvig," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(1Q), pages 59-82.
    7. Neil Wallace, 2014. "An Attractive Monetary Model with Surprising Implications for Optima: Two Examples," Quarterly Review, Federal Reserve Bank of Minneapolis, issue March, pages 1-16.
    8. repec:fgv:epgrbe:v:67:n:4:a:1 is not listed on IDEAS
    9. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2017. "A new suggestion for simplifying the theory of money," Journal of Economic Theory, Elsevier, vol. 172(C), pages 423-450.

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