Essential Interest-Bearing Money

David Andolfatto (dxa1048@miami.edu)

No 802, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: I examine a version of the Lagos and Wright (2005) monetary model where coercive lump-sum taxation is infeasible. Despite this restriction, I demonstrate that the first-best allocation remains implementable under an appropriately designed monetary policy; at least, if agents are sufficiently patient. The main conclusion is that any incentive-feasible monetary policy necessarily requires a strictly positive nominal interest rate to be paid on money balances.

Pages: 16 pages
Date: 2008, Revised 2008-10
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Essential interest-bearing money (2010)
Working Paper: Essential interest-bearing money (2009)
Working Paper: Essential Interest-Bearing Money (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:0802

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