Essential interest-bearing money

David Andolfatto ()

No 2009-044, Working Papers from Federal Reserve Bank of St. Louis

Abstract: I examine optimal monetary policy in a Lagos and Wright [A unified framework for monetary theory and policy analysis, J. Polit. Econ. 113 (2005) 463?484] model where trade is centralized and all exchange is voluntary. I identify a class of incentive feasible policies that improve welfare beyond what is achievable with zero intervention. Any policy in this class necessarily entails a non-negative inflation rate and a strictly positive nominal interest rate. Despite the absence of a lump-sum tax instrument, there exists an incentive-feasible policy that implements the first-best allocation.

Keywords: Money theory; Econometric models (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Essential interest-bearing money (2010)
Working Paper: Essential Interest-Bearing Money (2008)
Working Paper: Essential Interest-Bearing Money (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2009-044

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DOI: 10.20955/wp.2009.044

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