Lagos-Wright vs. Cash-in-Advance: Government Policy Response to War-Expenditure Shocks

Fernando Martin

No 745, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: I pit the Lagos-Wright micro founded model of money with the reduced-form cash-in-advance model in terms of their predictions for the response of government policy to war-expenditure shocks. The Lagos-Wright model performs well qualitative and quantitatively. Depending on specific assumptions about preferences, the cash-in-advance model either has some qualitative or quantitative shortcomings.

Date: 2011
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