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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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Robert E. Lucas,Nancy L. Stokey +1 more
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Monetary Theory and Policy
Carl E. Walsh
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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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