Search

We formulate a generalization of the traditional medium‐of‐exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions with money strengthens the stance of sellers of goods and services in relation to intermediaries, and show this mechanism is operative even for sellers who never exercise the option to sell for money. These latent money demand considerations imply that in general, in contrast to current conventional wisdom in policy‐oriented research in monetary economics, monetary policy can remain effective through medium‐of‐exchange transmission channels—even in highly developed credit economies where the share of monetary transactions is negligible. [ABSTRACT FROM AUTHOR]

We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence. (JEL E44, E52, G12, G14, G35) [ABSTRACT FROM AUTHOR]

The article discusses a monetary asset-pricing framework including its main normative and positive policy implications. A bare-bones model that encompasses the key economic mechanisms is outlined together with the individual optimization problem and the equilibrium of the economy. The Pareto optimal allocation is explained including the implications of the propositions. The perturbations of the optimal monetary policy is presented along with that which consists of targeting a constant positive nominal interest rate.

Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis. We propose a new framework, based on explicit micro foundations, within which macro policy can be studied. The framework is analytically tractable and easily quantifiable. We calibrate the model to standard observations and use it to measure the cost of inflation. We find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption--much higher than previous estimates. [ABSTRACT FROM AUTHOR]

We study the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We consider two pricing mechanisms: ex post bargaining and a notion of competitive pricing. Under bargaining, the equilibrium is generically inefficient and an increase in inflation reduces buyers' search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the efficient allocation, and inflation always reduces welfare, although it can have a positive effect on output for low inflation rates. [ABSTRACT FROM AUTHOR]