Essential interest-bearing money
I examine optimal monetary policy in a Lagos and Wright [A unified framework for monetary theory and policy analysis, J. Polit. Econ. 113 (2005) 463?484] model where trade is centralized and all exchange is voluntary. I identify a class of incentive feasible policies that improve welfare beyond what is achievable with zero intervention. Any policy in this class necessarily entails a non-negative inflation rate and a strictly positive nominal interest rate. Despite the absence of a lump-sum tax instrument, there exists an incentive-feasible policy that implements the first-best allocation.
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- Ricardo Lagos & Randall Wright, 2004.
"A unified framework for monetary theory and policy analysis,"
346, Federal Reserve Bank of Minneapolis.
- 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.
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"Asset trading mechanisms and expansionary policy,"
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Elsevier, vol. 54(1), pages 148-164, June.
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"Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium,"
PIER Working Paper Archive
03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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- Ricardo Lagos & Guillaume Rocheteau, 2004.
"Inflation, output, and welfare,"
0407, Federal Reserve Bank of Cleveland.
- Narayana Kocherlakota, 2003.
"Societal Benefits of Illiquid Bonds,"
Levine's Working Paper Archive
506439000000000300, David K. Levine.
- Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-10.
- Shouyong Shi, 2006.
"Welfare Improvement from Restricting the Liquidity of Nominal Bonds,"
tecipa-212, University of Toronto, Department of Economics.
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- Andolfatto, David, 2007.
"Incentives and the Limits to Deflationary Policy,"
4681, University Library of Munich, Germany.
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