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Doing Without Money: Controlling Inflation in a Post-Monetary World

Michael Woodford ()

Review of Economic Dynamics, 1998, vol. 1, issue 1, 173-219

Abstract: This paper shows that it is possible to analyze equilibrium inflation determination without any reference to either money supply or demand, as long as one specifies policy in terms of a "Wicksellian" interest-rate feedback rule. The paper's central result is an approximation theorem, showing the existence, for a simple monetary model, of a well-behaved "cashless limit" in which the money balances held to facilitate transactions become negligible. Inflation in the cashless limit is shown to be a function of the gap between the "natural rate" of interest, determined by the supply of goods and opportunities for intertemporal substitution, and a time-varying parameter of the interest-rate rule indicating the tightness of monetary policy. Inflation can be completely stabilized, in principle, by adjusting the policy parameter to track variation in the natural rate. Under such a regime, instability of money demand has little effect upon equilibrium inflation and need not be monitored by the central bank. (Copyright: Elsevier)

JEL-codes: E42 E52 (search for similar items in EconPapers)
Date: 1998
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Working Paper: Doing Without Money: Controlling Inflation in a Post-Monetary World (1997)
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DOI: 10.1006/redy.1997.0006

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