Janus's Money Demand and Time Inconsistency: A New Impossibility Theorem?

Joao Faria and Peter McAdam ()

No RWP 23-04, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We derive a general “Janus” money demand function that reflects backward- and forward-looking habit formation. The scope of our model allows us to explain the breakdown of money-demand functions and reduced policy relevance of monetary aggregates. Integrating our Janus money demand into a Barro-Gordon framework reveals new insights for time inconsistency in monetary policy and a new impossibility theorem.

Keywords: money demand; monetary policy; impossibility theorem (search for similar items in EconPapers)
JEL-codes: E41 E5 E61 E71 (search for similar items in EconPapers)
Pages: 19
Date: 2023-05-11
New Economics Papers: this item is included in nep-cba, nep-his, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:96358

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DOI: 10.18651/RWP2023-04

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