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A tractable model of monetary exchange with ex-post heterogeneity

Author

Listed:
  • Rocheteau, Guillaume

    (Department of Economics, University of California, Irvine)

  • Weill, Pierre-Olivier

    (Department of Economics, University of California, Los Angeles)

  • Wong, Russell

    (Federal Reserve Bank of Richmond)

Abstract

We construct a continuous-time, New-Monetarist economy that displays an endogenous, non-degenerate distribution of money holdings. Properties of equilibria are obtained analytically and equilibria are solved in closed form in a variety of cases. Lump-sum transfers financed with money creation are welfare-enhancing when labor productivity is low whereas regressive transfers approach first best when labor productivity is high and agents are not too impatient. We introduce illiquid government bonds and draw implications for liquidity-trap equilibria. We also study transitional dynamics under quadratic preferences and the velocity of money under heterogeneous preference shocks.

Suggested Citation

  • Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Russell, 2018. "A tractable model of monetary exchange with ex-post heterogeneity," Theoretical Economics, Econometric Society, vol. 13(3), September.
    • Handle: RePEc:the:publsh:2821
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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