Assets, General Equilibrium and the Neutrality of Money

Christophe Chamley and Herakles Polemarchakis

The Review of Economic Studies, 1984, vol. 51, issue 1, 129-138

Abstract: When government liabilities (including money) are held in private portfolios only as stores of value and do not provide additional services (such as liquidity), real variables are not affected by changes in the money supply due to the government's trading in real assets (open market operations). This neutrality of monetary policy fails if the government either trades in nominal assets, or it distributes subsidies and levies taxes.

Date: 1984
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