Essential interest-bearing money

David Andolfatto ()

Journal of Economic Theory, 2010, vol. 145, issue 4, 1495-1507

Abstract: I examine optimal monetary policy in a Lagos and Wright [R. Lagos, R. Wright, A unified framework for monetary theory and policy analysis, J. Polit. Economy 113 (2005) 463-484] model where trade is centralized and all exchange is voluntary. I identify a class of incentive-feasible policies that improve welfare beyond what is achievable with zero intervention. Any policy in this class necessarily entails a non-negative inflation rate and a strictly positive nominal interest rate. Despite the absence of a lump-sum tax instrument, there exists an incentive-feasible policy that implements the first-best allocation.

Keywords: Money; Interest; Friedman; rule; Voluntary; trade; Incentive-feasible; policies; Efficient; implementation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (51)

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Related works:
Working Paper: Essential interest-bearing money (2009)
Working Paper: Essential Interest-Bearing Money (2008)
Working Paper: Essential Interest-Bearing Money (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:145:y:2010:i:4:p:1495-1507

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