A Monetary Equilibrium Model with Transactions Costs

Julio Rotemberg

No 978, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents the competitive equilibrium of an economy in which people hold money for transactions purposes. It studies both the steady states which result from different rates of monetary expansion and the effects of such non-steady state events as an open market operation. Even though the model features no uncertainty and perfect foresight, open market operations affect aggregate output. In particular, a simultaneous increase in money and governmental holdings of capital temporarily raises aggregate capital and output while it lowers the real rate of interest on capital.

Date: 1982-09
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Published as Rotemberg, Julio J. "A Monetary Equilibrium Model with Transactions Costs." Journal of Political Economy, Vol. 92, No. 1, (February 1984), pp. 40-58 .

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