Fallibility, Precautionary Behaviour and the New Keynesian Monetary Theory

Marcello Messori and Roberto Tamborini ()

Scottish Journal of Political Economy, 1995, vol. 42, issue 4, pages 443-64

Abstract: In spite of a richness of New Keynesian models that provide the microfoundations to money non-neutrality, a systematic New Keynesian monetary theory is not ripe. In this paper the authors wish to propose a unifying theoretical monetary framework for these models, based on sequential time, uncertainty and incomplete markets. In this framework, we generalize the New Keynesian principle of fallibility and propose a model of precautionary behavior as a general attitude towards fallibility. By means of a model of precautionary portfolio choice applied to non-bank and bank agents, we extend the New Keynesian approach to the determinants of the demand for money and to the analysis of the supply side of the capital markets. Copyright 1995 by Scottish Economic Society.

Date: 1995
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