Whither Monetary Economics? |
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Authors: | Neil Wallace |
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Affiliation: | The Pennsylvania State University, U.S.A. |
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Abstract: | I argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential. The argument has two parts. First, I argue that models in which real balances are assumed to be productive—models with money in utility or production functions or with cash-in-advance constraints—contain hidden inconsistencies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effects of monetary shocks, the welfare cost of inflation, and the roles of inside and outside money. |
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