Limited participation and the neutrality of money

Money

Private money and counterfeiting

Money supply ; Banks and banking

Payments Systems with Random Matching and Private Information

A model of dynamic risk sharing is constructed where agents meet pairwise and at random, and there is private information about endowments. Risk sharing is accomplished through dynamic contracts involving credit transactions, and through monetary exchange. A Friedman rule is optimal, and solutions are computed. The welfare costs of inflation and the effects of inflation on the distribution of consumption and wealth are small for an economy calibrated to U.S. data. However, these effects are large when the credit system is relatively unsophisticated.97-21

New Keynesian economics : a monetary perspective

In this article we construct a simple analytically tractable model to explore and evaluate New Keynesian ideas. First, we show that a New Keynesian model need not exhibit Phillips curve correlations in the absence of strategic price setting by firms. Second, we conclude that New Keynesian economics needlessly neglects monetary frictions and misses out on some key insights in the process. For example, it is important to understand how the central bank should manipulate monetary quantities to support particular nominal interest rate rulesEconomics ; Monetary theory

Recent developments in modeling financial intermediation

Financial institutions ; Money theory

Bank failures, financial restrictions, and aggregate fluctuations: Canada and the United States, 1870-1913

During 1870_1913, Canada had a well-diversified branch banking system while banks in the U.S. unit-banking system were less diversified. Canadian banks could issue large-denomination notes with no restrictions on their backing, while all U.S. currency was essentially an obligation of the U.S. government. Also, experience in the two countries with regard to bank failures and panics was quite different. A general equilibrium business cycle model with endogenous financial intermediation is constructed that captures these historical Canadian and American monetary and banking arrangements as special cases. The model's predictions contradict conventional wisdom about the cyclical effects of banking panics. Support for these predictions is found in aggregate annual time series data for Canada and the United States.Bank failures ; Banks and banking - History ; Canada

Transactions, Credit, and Central Banking in a Model of Segmented Markets

A segmented markets model is constructed in which transactions are conducted using credit and currency. Goods market segmentation plays an important role, in addition to the role played by conventional segmentation of asset markets. An important novelty of the paper is to show how the diffusion of a money injection by the central bank depends not only on the interaction of agents in exchanging money for goods, but on the arrangements for clearing and settlement of credit instruments. The model permits open market operations, daylight overdrafts, reserve-holding, and overnight lending and borrowing, allowing us to consider a rich array of central banking arrangements and their implicationsMoney, Segmented Markets, Credit, Central Banking

Monetary Policy and Distribution

monetary policy, monetary theory, Friedman rule, money neutrality

New Monetarist Economics: models

The purpose of this paper is to discuss some of the models used in New Monetarist Economics, which is our label for a body of recent work on money, banking, payments systems, asset markets, and related topics. A key principle in New Monetarism is that solid microfoundations are critical for understanding monetary issues. We survey recent papers on monetary theory, showing how they build on common foundations. We then lay out a tractable benchmark version of the model that allows us to address a variety of issues. We use it to analyze some classic economic topics, like the welfare effects of inflation, the relationship between money and capital accumulation, and the Phillips curve. We also extend the benchmark model in new ways, and show how it can be used to generate new insights in the study of payments, banking, and asset markets.Money ; Monetary policy

Money and dynamic credit arrangements with private information

The authors construct a model with private information in which consumers write dynamic contracts with financial intermediaries.Money ; Credit