A unified framework for monetary theory and policy analysis

Ricardo Lagos () and Randall Wright ()

No 346, Staff Report from Federal Reserve Bank of Minneapolis

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.

Keywords: Monetary policy; Money (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2004
View list of references View citations in EconPapers

Published in Journal of Political Economy> (Vol. 113, No. 3, June 2005, pp. 463-484)

Downloads: (external link)
http://minneapolisfed.org/research/sr/sr346.pdf (application/pdf)

Related works:
Working Paper: A unified framework for monetary theory and policy analysis (2002)
Journal Article: A Unified Framework for Monetary Theory and Policy Analysis (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:346

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().