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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
The Welfare Cost of Inflation in OECD Countries
TL;DR: In this article, the welfare cost of anticipated inflation is quantified in a matching model of money calibrated to twenty-three different OECD countries for several sample periods, in most economies, given the common period 1978-1998, a representative agent would give up only a fraction of 1% of consumption to avoid 10% inflation.
Monetary Policy with Asset-Backed Money
David Andolfatto,David Andolfatto,Aleksander Berentsen,Aleksander Berentsen,Christopher J. Waller,Christopher J. Waller +5 more
TL;DR: It is found that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal, however, for sufficiently capital-poor economies, achieving the first the best allocation requires a strictly positive rate of inflation.
Bargaining under liquidity constraints: Unified strategic foundations of the Nash and Kalai solutions
TL;DR: An N-round game where in each round a seller and a buyer with limited payment capacity negotiate a bundle of divisible goods, where bundle sizes can vary across rounds, according to Rubinstein 's ( 1982 ) alternating-offer game.
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A Dynamic Model of Unsecured Credit
TL;DR: In this paper, the authors study the terms of credit in a competitive market in which sellers (lenders) are willing to repeatedly finance the purchases of buyers (borrowers) by engaging in a credit relationship.
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Liquidity, Interest Rates and Output
TL;DR: In this paper, the authors integrate monetary search theory with limited participation to analyze the liquidity eect of open market operations and show that even independent shocks in the open market can have persistent eects on interest rates and real output.
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