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A Unified Framework for Monetary Theory and Policy Analysis
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TL;DR: This article proposed a framework based on explicit micro foundations within which macro policy can be analyzed and demonstrated that the model is both analytically tractable and amenable to quantitative analysis by using it to estimate the welfare cost of inflation.
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Abstract: Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically need strong assumptions that make them ill-suited for studying monetary policy. We propose a framework based on explicit micro foundations within which macro policy can be analyzed. The model is both analytically tractable and amenable to quantitative analysis. We demonstrate this by using it to estimate the welfare cost of inflation. We find much higher costs than the previous literature: our model predicts that going from 10% to 0% inflation can be worth between 3% and 5% of consumption.
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Citations
New Monetarism in Continuous Time: Methods and Applications
Michael Choi,Guillaume Rocheteau +1 more
TL;DR: In this paper, the authors develop a New Monetarist model in continuous time where agents trade continuously in competitive markets and infrequently in pairwise meetings and illustrate the role of continuous time and the tractability of their approach with three applications: (i) forward guidance with policy announcements; (ii) aggregate demand management and monetary policy; (iii) open-market operations with partially liquid bonds.
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Financial Flexibility, Bank Capital Flows, and Asset Prices
TL;DR: In this article, the authors developed a parsimonious general-equilibrium model of banking and asset pricing, in which intermediaries have the expertise to monitor and reallocate capital.
Optimal monetary policy with heterogeneous money holdings
TL;DR: The optimal policy prescribes monetary expansions in recessions, when insurance is most needed by the cash-poor unproductive agents, and prescription of monetary contractions during booms, so that the inflationary effect of the occasional expansions is undone.
22
A Search Model of Unemployment and Inflation
TL;DR: In this paper, the authors introduce money in the standard labor-matching model and show that a double coincidence problem makes Fiat money necessary as a medium of exchange, and that a rise in the rate of money growth leads to higher inflation and higher unemployment.
Heterogeneity in Decentralized Asset Markets
TL;DR: In this article, a search and bargaining model of an asset market, where investors' heterogeneous valuations for the asset are drawn from an arbitrary distribution, has been proposed, and the model can provide a full characterization of the unique equilibrium, in closed-form, both in and out of steady-state.
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