Multiple Critiques of Woodford’s Model of a Cashless Economy

Abstract: Woodford’s (2003) model of a cashless economy is the basis for his book Interest and Prices. Since Woodford assumes complete markets, this paper explicitly includes state-contingent securities with either temporary money or a cash-in-advance constraint to analyze Woodford’s logic. This analysis finds four logical problems with Woodford’s analysis: (1) Woodford’s assumption that his solution is bounded is inappropriate. (2) Any finite version of Woodford’s model is incomplete. (3) Woodford’s central bank does not control nominal interest rates. (4) Woodford argument that interest rates determine prices and that prices affect the interest rate is circular and hence invalid.

Keywords: cashless economy; monetary economics; pegging interest rates; central banking (search for similar items in EconPapers)
JEL-codes: E52 E42 E58 E44 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2005-04-19
Note: Type of Document - pdf; pages: 30. I did try to submit many of the points made in the paper directly to Woodford initially. However, he never responded.
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