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A suggestion for further simplifying the theory of money

  • John Bryant
  • Neil Wallace
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    Our suggestion consists of three postulates: assets are valued only in terms of their payoffs, perfect foresight, and complete and costless markets under laissez-faire. Together these postulates imply that the crucial anomaly, rate-of-return dominance of “money,” is to be explained by legal restrictions. ; Our defense of these postulates is two-fold. First we compare them with existing alternative theories. Second, we provide an illustrative model which : (a) is consistent with the postulates, (b) implies rate-of-return dominance under suitable legal restrictions, and (c) addresses monetary policy questions with standard welfare economics and, in particular, rationalizes in terms of price discrimination a debt management policy that “tailors debt issues to the needs of the market.”

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    Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 62.

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    Date of creation: 1980
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    Handle: RePEc:fip:fedmsr:62
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    1. Hahn, Frank H, 1973. "On Transaction Costs, Inessential Sequence Economies and Money," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 449-61, October.
    2. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
    3. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
    4. Martins, Marco Antonia Campos, 1980. "A Nominal Theory of the Nominal Rate of Interest and the Price Level," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 174-85, February.
    5. Bryant, John, 1980. " Nontransferable Interest-Bearing National Debt," Journal of Finance, American Finance Association, vol. 35(4), pages 1027-31, September.
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