Search, money and capital: a neoclassical dichotomy

Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step towards this integration by introducing labor, capital and neoclassical firms. The resulting framework nests the search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independently of the paths of consumption, investment and employment in the centralized market.Monetary theory ; Macroeconomics

Search, Money and Capital: A Neoclassical Dichotomy, Second Version

Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step towards this integration by introducing labor, capital and neoclassical firms. The resulting framework nests the search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independently of the paths of consumption, investment and employment in the centralized market.Money, Search, Capital

Money and Capital

money, capital, inflation, welfare

Sticky prices versus monetary frictions: an estimation of policy trade-offs

We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. The model is estimated and evaluated based on postwar U.S. data. We document its money demand properties and determine the optimal long-run inflation rate that trades off the New Keynesian distortion against the distortion caused by taxing money and hence transactions in the decentralized market. We find that target rates of -1% or less are desirable, which contrasts with policy recommendations derived from a cashless New Keynesian model.

Data Uncertainty in General Equilibrium

In this paper, using recent empirical results regarding the statistical properties of macroeconomic data revisions, we study the effects of data revisions in a general equilibrium framework. We find that the presence of data revisions, or data uncertainty, creates a precautionary motive and causes significant changes in the decisions of agents. We also find that the model with revisions captures some aspects of the business cycle dynamics of the US data better than the benchmark model with no revisions. Using our model we measure the cost of having data revisions to be about $33 billion,$5 billion of which can be recovered by eliminating the predictability of revisions. Comparing these numbers with the budgets of the major statistical agencies in the US, we conclude that any money spent on the improvement of data collection would be well worth itNeoclassical growth model, productivity, forecasting, data uncertainty

Real-Time Macroeconomic Monitoring: Real Activity, Inflation, and Interactions

We sketch a framework for monitoring macroeconomic activity in real-time and push it in new directions. In particular, we focus not only on real activity, which has received most attention to date, but also on inflation and its interaction with real activity. As for the recent recession, we find that (1) it likely ended around July 2009; (2) its most extreme aspects concern a real activity decline that was unusually long but less unusually deep, and an inflation decline that was unusually deep but brief; and (3) its real activity and inflation interactions were strongly positive, consistent with an adverse demand shock.Nowcasting, Prices, Wages, Business cycle, Expansion, Contraction, Recession, Turning point, State-space model, Dynamic factor model

Real-time macroeconomic monitoring: real activity, inflation, and interactions

The authors sketch a framework for monitoring macroeconomic activity in real-time and push it in new directions. In particular, they focus not only on real activity, which has received most attention to date, but also on inflation and its interaction with real activity. As for the recent recession, the authors find that (1) it likely ended around July 2009; (2) its most extreme aspects concern a real activity decline that was unusually long but less unusually deep, and an inflation decline that was unusually deep but brief; and (3) its real activity and inflation interactions were strongly positive, consistent with an adverse demand shock.Financial crises ; Real-time data ; Macroeconomics

Money and capital

We revisit classic questions concerning the effects of money on investment in a new framework: a two-sector model where some trade occurs in centralized and some in decentralized markets, as in recent monetary theory, but extended to include capital. This allows us to incorporate novel elements from the microfoundations literature on trading with frictions, including stochastic exchange opportunities, alternative pricing mechanisms, etc. We calibrate models with bargaining and with price taking in the decentralized market.Money ; Capital ; Monetary policy