Working Paper
Janus's Money Demand and Time Inconsistency: A New Impossibility Theorem?
Abstract: We derive a general “Janus” money demand function that reflects backward- and forward-looking habit formation. The scope of our model allows us to explain the breakdown of money-demand functions and reduced policy relevance of monetary aggregates. Integrating our Janus money demand into a Barro-Gordon framework reveals new insights for time inconsistency in monetary policy and a new impossibility theorem.
Keywords: money demand; monetary policy; impossibility theorem;
JEL Classification: E41; E5; E61; E71;
https://doi.org/10.18651/RWP2023-04
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https://www.kansascityfed.org/Research%20Working%20Papers/documents/9522/rwp23-04fariamcadam.pdf
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Provider: Federal Reserve Bank of Kansas City
Part of Series: Research Working Paper
Publication Date: 2023-05-11
Number: RWP 23-04