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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
Money and Credit : Theory and Applications
TL;DR: In this paper, the authors develop a theory of money and credit as competing payment instruments, then put it to work in applications, and analyze the effects of inflation on welfare, price dispersion and markups.
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Information and Liquidity: A Discussion
TL;DR: In this article, the authors consider a model with decentralized trades in which claims on a real and divisible asset serve as means of payment, and a recognizability problem is introduced by assuming that the claims on the asset can be counterfeited at a positive cost.
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Asset issuance in over-the-counter markets
TL;DR: In this paper, the authors show that the level of asset issuance and its efficiency depend on how investors split the surplus in secondary market trade and propose a tax/subsidy scheme to restore efficiency.
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Money, search, and business cycles*
TL;DR: In this article, the authors investigate the short run properties of a particular model considering a number of versions based on some modeling choices and find that in many aspects, both real and nominal, the model resembles other, more reduced-form models.
15
Optimum Quantity of Money
Timothy S. Fuerst
- 01 Jan 2010
TL;DR: The Friedman rule as mentioned in this paper states that the private cost of a good or service should be equated to the social cost of this good and service, and that the optimal monetary policy should bring about a steady deflation in the general price level.
15
References
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Nancy L. Stokey,Robert E. Lucas,Edward C. Prescott +2 more
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TL;DR: In this article, a deterministic model of optimal growth is proposed, and a stochastic model is proposed for optimal growth with linear utility and linear systems and linear approximations.
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Indivisible labor and the business cycle
TL;DR: In this paper, a growth model with shocks to technology is studied, and it is shown that, unlike previous equilibrium models of the business cycle, this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity.
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Optimal fiscal and monetary policy in an economy without capital
Robert E. Lucas,Nancy L. Stokey +1 more
TL;DR: In this paper, the structure and time-consistency of optimal fiscal and monetary policy in an economy without capital are investigated. And the main finding is that with debt commitments of sufficiently rich maturity structure, an optimal policy, if one exists, is time-Consistent.
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Monetary Theory and Policy
Carl E. Walsh
- 27 Oct 1998
TL;DR: In this article, empirical evidence on money and output is presented, including the Tobin effect and the MIU approximation problems, and a general equilibrium framework for monetary analysis is presented.
2.1K
On The Efficiency of Matching and Related Models of Search and Unemployment
TL;DR: In this article, a simple framework for evaluating the allocative performance of economies characterized by trading frictions and unemployment is described, which integrates the normative results of earlier diamond-Mortensen-Pissarides bilateral matching-bargaining models of trade coordination and price-setting.
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