Search Results
Showing results 1 to 6 of approximately 6.
(refine search)
Working Paper
Friedman meets Hosios: efficiency in search models of money
In this paper the authors study the inefficiencies of the monetary equilibrium and optimal monetary policies in a search economy. They show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades (or search decisions). The Friedman rule eliminates the first inefficiency, and the Hosios rule the second. A monetary equilibrium attains the social optimum if and only if both rules are satisfied. When the two rules cannot be satisfied simultaneously, which occurs in a large set of economies, optimal ...
Working Paper
Insurance policies for monetary policy in the euro area
In this paper, the authors aim to design a monetary policy for the euro area that is robust to the high degree of model uncertainty at the start of monetary union and allows for learning about model probabilities. To this end, they compare and ultimately combine Bayesian and worst-case analysis using four reference models estimated with pre-EMU synthetic data. The authors start by computing the cost of insurance against model uncertainty, that is, the relative performance of worst-case or minimax policy versus Bayesian policy. While maximum insurance comes at moderate costs, they highlight ...
Working Paper
Optimal fiscal and monetary policy with sticky wages and sticky prices
We determine the optimal degree of price inflation volatility when nominal wages are sticky and the government uses state-contingent inflation to finance government spending. We address this question in a well-understood Ramsey model of fiscal and monetary policy, in which the benevolent planner has access to labor income taxes, nominal riskless debt, and money creation. One main result is that sticky wages alone make price stability optimal in the face of government spending shocks, to a degree quantitatively similar as sticky prices alone. With productivity shocks also present, optimal ...
Working Paper
The advantage of transparent instruments of monetary policy
A classic question in international economics is whether it is better to use the exchange rate or the money growth rate as the instrument of monetary policy. A common argument is that the exchange rate has a natural advantage since exchange rates provide signals of policymakers? actions that are easier to monitor than those provided by money growth rates. We formalize this argument in a simple model in which the government chooses which instrument it will use to target inflation. In it, the exchange rate is more transparent than the money growth rate in that the exchange rate is easier for ...
Working Paper
Rational expectations and the theory of economic policy
