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Short-Run and Long-Run Effects of Changes in Money in a Random-Matching Model

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  • Wallace, Neil

Abstract

A random-matching model of money is used to deduce the effects of a once-for-all change in the quantity of money. It is shown that the change has short-run effects that are predominantly real and long-run effects that are in the direction of being predominantly nominal provided that the change is random and people learn its realization only with a lag. The change in the quantity of money comes about through a random process of discovery that does not permit anyone to deduce the aggregate amount discovered when the change actually occurs. Copyright 1997 by the University of Chicago.

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  • Wallace, Neil, 1997. "Short-Run and Long-Run Effects of Changes in Money in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1293-1307, December.
  • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:6:p:1293-1307
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    References listed on IDEAS

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    1. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, pages 1179-1232.
    3. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, pages 215-235.
    4. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
    5. Robert J. Barro & Robert G. King, 1984. "Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, pages 817-839.
    6. Robert J. Barro & Robert G. King, 1984. "Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, pages 817-839.
    7. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, pages 1-20.
    8. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, pages 467-496.
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    Cited by:

    1. Araujo, Luis & Shevchenko, Andrei, 2006. "Price dispersion, information and learning," Journal of Monetary Economics, Elsevier, pages 1197-1223.
    2. Amador, Manuel & Weill, Pierre-Olivier, 2012. "Learning from private and public observations of othersʼ actions," Journal of Economic Theory, Elsevier, pages 910-940.
    3. Brett Katzman & John Kennan & Neil Wallace, 1999. "Optimal monetary impulse-response functions in a matching model," Working Papers 595, Federal Reserve Bank of Minneapolis.
    4. Baranowski, Ryan, 2015. "Adaptive learning and monetary exchange," Journal of Economic Dynamics and Control, Elsevier, pages 1-18.
    5. Araujo, Luis & Camargo, Braz, 2006. "Information, learning, and the stability of fiat money," Journal of Monetary Economics, Elsevier, pages 1571-1591.
    6. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, May.
    7. Jin, Gu & Zhu, Tao, 2017. "Nonneutrality of Money in Dispersion: Hume Revisited," MPRA Paper 79561, University Library of Munich, Germany.
    8. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
    9. repec:eee:jetheo:v:172:y:2017:i:c:p:423-450 is not listed on IDEAS
    10. O. Cavalcanti, Ricardo de & Erosa, Andrés, 2008. "Efficient propagation of shocks and the optimal return on money," Journal of Economic Theory, Elsevier, pages 128-148.
    11. Jones, Larry E. & Manuelli, Rodolfo E., 2001. "Volatile Policy and Private Information: The Case of Monetary Shocks," Journal of Economic Theory, Elsevier, pages 265-296.
    12. Katzman, Brett & Kennan, John & Wallace, Neil, 2003. "Output and price level effects of monetary uncertainty in a matching model," Journal of Economic Theory, Elsevier, pages 217-255.
    13. Vladimir Teles & Joaquim Andrade, 2008. "Monetary policy and country risk," Applied Economics, Taylor & Francis Journals, vol. 40(15), pages 2021-2028.
    14. Zhe Li & Miquel Faig, 2007. "The Welfare Cost of Expected and Unexpected Inflation," 2007 Meeting Papers 125, Society for Economic Dynamics.
    15. William A. Brock & Steven N. Durlauf, 2004. "Elements of a Theory of Design Limits to Optimal Policy," Manchester School, University of Manchester, pages 1-18.
    16. Klaus Rainer Schenk-Hopp�, "undated". "Stochastic Tastes and Money in a Neo-Keynesian Economy," IEW - Working Papers 088, Institute for Empirical Research in Economics - University of Zurich.
    17. Besancenot, Damien & Rocheteau, Guillaume & Vranceanu, Radu, 2000. "Search, Price Illusion and Welfare," Journal of Macroeconomics, Elsevier, pages 109-124.
    18. Heng-Chi Lee & Bruce A. McCarl & Dhazn Gillig, 2005. "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 343-357, December.
    19. Faig, Miquel & Li, Zhe, 2009. "The welfare costs of expected and unexpected inflation," Journal of Monetary Economics, Elsevier, pages 1004-1013.
    20. Drew, Aaron & Hall, Viv B. & McDermott, C. John & Clair, Robert St., 2004. "Would adopting the Australian dollar provide superior monetary policy in New Zealand?," Economic Modelling, Elsevier, pages 949-964.

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