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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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References
•Posted Content
A Dynamic Equilibrium Model of Search
TL;DR: In this article, the authors study a general equilibrium model where agents search for production and trading opportunities, that generalizes the existing literature by considering a large number of differentiated commodities and agents with idiosyncratic tastes.
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On the Distribution of Money Holdings in a Random-Matching Model
TL;DR: In this article, the stationary and non-stationary distributions of money holdings in a random-matching model were studied and it was shown that if the production costs are not too large, any distribution of the optimum quantity of money converges asymptotically to the uniform distribution.
Money inventories in search equilibrium
TL;DR: In this paper, the authors relax the one unit storage capacity imposed in the basic search-theoretic model of fiat money with real commodities and indivisible money and show that for reasonable parameter values (e.g., production cost, discounting, degree of specialization) a monetary equilibrium exists.
Seasonality and monetary policy
TL;DR: In this paper, the authors build a model of monetary policy in the presence of seasonality that puts financial market conditions in the foreground and show that the case for eliminating seasonality in nominal rates of interest is strongest when seasonal impulses derive from shifts in money demand.
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