Anticipated Monetary Policy in a Cash-in-Advance Economy

Benoit Carmichael

Canadian Journal of Economics, 1989, vol. 22, issue 1, 93-108

Abstract: This paper analyzes the effects of perfectly foreseen monetary policy within the framework of a standard cash-in-advance economy. Anticipated monetary policy is shown to have real effects by influencing inflationary expectations. In a cash-in-advance economy, an increase in the anticipated rate of inflation reduces the return to labor supply and induces a substitution away from time spent in the labor market. The paper analyzes the implication of this substitution for the time paths of output, prices, interest rates (real and nominal), and stock market prices.

Date: 1989
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