A price discrimination analysis of monetary policy

John Bryant and Neil Wallace ()

No 51, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Monetary policy is analyzed within a model that ignores transaction costs and appeals solely to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in versions of overlapping generations models that contain three assets: government-issued currency and bonds and real capital. It is shown that legal restrictions and the use of both currency and bonds permit the government to levy a discriminatory inflation tax and that such a tax may be better in terms of the Pareto criterion than a uniform inflation tax.

Date: 1983
New Economics Papers: this item is included in nep-cba and nep-mon
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Journal Article: A Price Discrimination Analysis of Monetary Policy (1984)
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