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Lagos-Wright vs. Cash-in-Advance: Government Policy Response to War-Expenditure Shocks

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  • Fernando M. Martin

    (Simon Fraser University)

Abstract

I pit the Lagos-Wright micro founded model of money with the reduced-form cash-in-advance model in terms of their predictions for the response of government policy to war-expenditure shocks. The Lagos-Wright model performs well qualitative and quantitatively. Depending on specific assumptions about preferences, the cash-in-advance model either has some qualitative or quantitative shortcomings.

Suggested Citation

  • Fernando M. Martin, 2011. "Lagos-Wright vs. Cash-in-Advance: Government Policy Response to War-Expenditure Shocks," 2011 Meeting Papers 745, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:745
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_745.pdf
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    References listed on IDEAS

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    1. Fernando Martin, 2009. "A Positive Theory of Government Debt," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 608-631, October.
    2. Martin, Fernando M., 2011. "On the joint determination of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 132-145, March.
    3. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2015. "Optimal Fiscal and Monetary Policy in Customer Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 617-672, June.
    4. 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.
    5. Fernando M. Martin, 2013. "Government Policy In Monetary Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 185-217, February.
    6. 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.
    7. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-775, August.
    8. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    9. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 22(Win), pages 20-26.
    10. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, vol. 135(1), pages 171-195, July.
    11. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    12. Arseneau, David M. & Chugh, Sanjay K., 2008. "Optimal fiscal and monetary policy with costly wage bargaining," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1401-1414, November.
    13. Aleksander Berentsen & Christopher Waller, 2008. "Outside Versus Inside Bonds," IEW - Working Papers 372, Institute for Empirical Research in Economics - University of Zurich.
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    Cited by:

    1. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.

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