On the Usefulness of the Constrained Planning Problem in a Model of Money

In this paper, we study a decentralized monetary economy with a specified set of markets, rules of trade, an equilibrium concept, and a restricted set of policies and derive a set of equilibrium (monetary) allocations. Next we set up a simpler constrained planning problem in which we restrict the planner to choose from a set that contains the set of equilibrium allocations in the decentralized economy. If there is a government policy that allows the decentralized economy to achieve the constrained planner's allocation, then it is the optimal policy choice. To illustrate the power of such analyses, we solve such planning problems in three monetary environments with limited communication. The upshot is that solving constrained planning problems is an extremely "efficient" (easy and quick) way of deriving optimal policies for the corresponding decentralized economies.planning problems; overlapping generations; random relocation model

Optimal Monetary Policy Rules Under Persistent Shocks

The tug-o-war for supremacy between inflation targeting and monetary targeting is a classic yet timely topic in monetary economics. In this paper, we revisit this question within the context of a pure-exchange overlapping generations model of money where spatial separation and random relocation create an endogenous demand for money. We distinguish between shocks to real output and shocks to the real interest rate. Both shocks are assumed to follow AR(1) processes. Irrespective of the nature of shocks, the optimal inflation target is always positive. Under monetary targeting, shocks to endowment require negative money growth rates, while under shocks to real interest rates it may be either positive or negative depending on the elasticity of consumption substitution. Also, monetary targeting welfare-dominates inflation targeting but the gap between the two vanishes as the shock process approaches a random walk. In sharp contrast, for shocks to the real interest rate, we prove that monetary targeting and inflation targeting are welfare-equivalent only in the limit when the shocks become i.i.d.! The upshot is that persistence of the underlying fundamental uncertainty matters: depending on the nature of the shock, policy responses can either be more or less aggressive as persistence increases.overlapping generations; random relocation model; monetary targeting; inflation targeting; real shocks; persistence

Optimal monetary policy rules under persistent shocks

The tug-o-war for supremacy between inflation targeting and monetary targeting is a classic yet timely topic in monetary economics. In this paper, we revisit this question within the context of a pure-exchange overlapping generations model of money where spatial separation and random relocation create an endogenous demand for money. We distinguish between shocks to real output and shocks to the real interest rate. Both shocks are assumed to follow AR(1) processes. Irrespective of the nature of shocks, the optimal inflation target is always positive. Under monetary targeting, shocks to endowment require negative money growth rates, while under shocks to real interest rates it may be either positive or negative depending on the elasticity of consumption substitution. Also, monetary targeting welfare-dominates inflation targeting but the gap between the two vanishes as the shock process approaches a random walk. In sharp contrast, for shocks to the real interest rate, we prove that monetary targeting and inflation targeting are welfare-equivalent only in the limit when the shocks become i.i.d.! The upshot is that persistence of the underlying fundamental uncertainty matters: depending on the nature of the shock, policy responses can either be more or less aggressive as persistence increases

On the usefulness of the constrained planning problem in a model of money

In this paper, we study a decentralized monetary economy with a specified set of markets, rules of trade, an equilibrium concept, and a restricted set of policies and derive a set of equilibrium (monetary) allocations. Next we set up a simpler constrained planning problem in which we restrict the planner to choose from a set that contains the set of equilibrium allocations in the decentralized economy. If there is a government policy that allows the decentralized economy to achieve the constrained planner\u27s allocation, then it is the optimal policy choice. To illustrate the power of such analyses, we solve such planning problems in three monetary environments with limited communication. The upshot is that solving constrained planning problems is an extremely efficient (easy and quick) way of deriving optimal policies for the corresponding decentralized economies

Optimal choice of monetary instruments in an economy with real and liquidity shocks

Faced with real and nominal shocks, what should a benevolent central bank do, fix the money growth rate or target the inflation rate? In this paper, we make a first attempt at studying the optimal choice of monetary policy instruments in a micro-founded model of money. Specifically, we produce an overlapping generations economy in which limited communication and stochastic relocation creates an endogenous transactions role for fiat money. We find that when the shocks are real, welfare is higher under money growth targeting; when the shocks are nominal and not large, welfare is higher under inflation rate targeting. While under inflation rate targeting, it is always optimal to pursue an expansionary policy, it is never optimal to do so under money growth targeting

Who is Afraid of the Friedman Rule?

In this paper, we explore the connection between optimal monetary policy and heterogeneity among agents. We study a standard monetary economy with two types of agents in which the stationary distribution of money holdings is non-degenerate. Sans type-specific fiscal policy, we show that the zero-nominal-interest rate policy (the Friedman rule) does not maximize type-specific welfare; it may not maximize aggregate social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule. Our results suggest a positive explanation for why central banks around the world do not implement the Friedman rule

Who is Afraid of the Friedman Rule?

In this paper, we explore the connection between optimal monetary policy and heterogeneity among agents. We study a standard monetary economy with two types of agents in which the stationary distribution of money holdings is non-degenerate. Sans type-specific fiscal policy, we show that the zero-nominal-interest rate policy (the Friedman rule) does not maximize type-specific welfare; it may not maximize aggregate social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule. Our results suggest a positive explanation for why central banks around the world do not implement the Friedman rule.Friedman rule; monetary policy; money-in-the-utility-function

Association of Enhanced HIV-1 Neutralization by a Single Y681H Substitution in gp41 with Increased gp120-CD4 Interaction and Macrophage Infectivity

HIV-1 variants that show unusual sensitivity to autologous antibodies due to presence of critical neutralization signatures would likely contribute towards rational envelope based HIV-1 vaccine design. In the present study, we found that presence of a naturally occurring H681 in gp41 membrane proximal external region (MPER) of a clade C envelope (Env) obtained from a recently infected Indian patient conferred increased sensitivity to autologous and heterologous plasma antibodies. Furthermore, Env-pseudotyped viruses expressing H681 showed increased sensitivity to soluble CD4, b12 and 4E10 monoclonal antibodies both in related and unrelated Envs and was corroborated with increased Env susceptibility and binding to cellular CD4 as well as with prolonged exposure of MPER epitopes. The increased gp120-CD4 interaction was further associated with relative exposure of CD4-induced epitopes and macrophage infectivity. In summary, our data indicate that Y681H substitution exposes neutralizing epitopes in CD4bs and MPER towards comprehensive interference in HIV-1 entry

Optimal choice of monetary policy instruments in an economy with real and liquidity shocks

Faced with real and nominal shocks, what should a benevolent central bank do, fix the money growth rate or target the inflation rate? In this paper, we make a first attempt at studying the optimal choice of monetary policy instruments in a micro-founded model of money. Specifically, we produce an overlapping generations economy in which limited communication and stochastic relocation creates an endogenous transactions role for fiat money. We find that when the shocks are real, welfare is higher under money growth targeting; when the shocks are nominal and not large, welfare is higher under inflation targeting. While under inflation targeting, it is always optimal to pursue an expansionary policy, it is never optimal to do so under money growth targeting

Who is Afraid of the Friedman Rule?

In this paper, we explore the connection between optimal monetary policy and heterogeneity among agents. We study a standard monetary economy with two types of agents in which the stationary distribution of money holdings is non-degenerate. Sans type-specific fiscal policy, we show that the zero-nominal-interest rate policy (the Friedman rule) does not maximize type-specific welfare; it may not maximize aggregate social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule. Our results suggest a positive explanation for why central banks around the world do not implement the Friedman rule.Friedman rule, monetary policy, money-in-the-utility-function