Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money - under efficient monetary policy - is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient "money cycle" patterns of saving, activity, and inactivity. Agents spend their money too quickly - a "hot potato effect of inflation". We show that inflation can stimulate inefficiently high aggregate output.
|Date of creation:||22 Sep 2014|
|Contact details of provider:|| Postal: 31 Buccleuch Place, EH8 9JT, Edinburgh|
Web page: http://www.econ.ed.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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, 05.
- Aleksander Berentsen & Gabriele Camera & Christopher Waller, "undated". "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
- Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-732, May.
- Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711.
- Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
- Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
- Andrew Clausen & Carlo Strub, 2012. "Envelope theorems for non-smooth and non-concave optimization," ECON - Working Papers 062, Department of Economics - University of Zurich.
- Andrew Clausen & Carlo Strub, 2016. "A General and Intuitive Envelope Theorem," ESE Discussion Papers 274, Edinburgh School of Economics, University of Edinburgh.
- Carlo Strub & Andrew Clausen, 2014. "A General and Intuitive Envelope Theorem," 2014 Meeting Papers 235, Society for Economic Dynamics.
- Andrew Clausen & Carlo Strub, 2014. "A General and Intuitive Envelope Theorem," ESE Discussion Papers 248, Edinburgh School of Economics, University of Edinburgh.
- Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
- Richard Rogerson & Johanna Wallenius, 2007. "Micro and Macro Elasticities in a Life Cycle Model With Taxes," NBER Working Papers 13017, National Bureau of Economic Research, Inc.
- Cotter, Kevin D. & Park, Jee-Hyeong, 2006. "Non-concave dynamic programming," Economics Letters, Elsevier, vol. 90(1), pages 141-146, January.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
- Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2009. "Lifetime Aggregate Labor Supply with Endogenous Workweek Length," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 23-36, January.
- Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2007. "Lifetime aggregate labor supply with endogenous workweek length," Staff Report 400, Federal Reserve Bank of Minneapolis.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:edn:esedps:249. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gina Reddie)
If references are entirely missing, you can add them using this form.