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Whither Monetary Economics?

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  • Wallace, Neil

Abstract

I argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential. The argument has two parts. First, I argue that models in which real balances are assumed to be productive--models with money in utility or production functions or with cash-in-advance constraints--contain hidden inconsistencies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effects of monetary shocks, the welfare cost of inflation, and the roles of inside and outside money. Copyright 2001 by American Economic Association.

Suggested Citation

  • Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-869, November.
  • Handle: RePEc:ier:iecrev:v:42:y:2001:i:4:p:847-69
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