The effects of money (anticipated inflation) on capital formation is a classic issue in macroeconomics. Previous papers adopt reduced-form approaches, putting money in the utility function, or imposing cash in advance, but using otherwise frictionless models. We follow instead a literature that...

For competitive economies in which the real rate of return on money is too low, the standard prescription is to engineer a deflation—that is, to operate monetary policy according to the Friedman rule. Implicit in this recommendation is the availability of a lump-sum tax instrument. In this...

The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently--but not always--combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for...

Several recent papers report evidence of an apparent statistical bias in inflation expectations and interpret these findings as overturning the rational expectations hypothesis. In this paper, we investigate the validity of such an interpretation. We present a computational dynamic general...

Many countries simultaneously suffer from high inflation, low growth and poorly developed financial sectors. In this paper, we integrate a microfounded model of money and finance into a model of endogenous growth to examine the effects of inflation on welfare, growth and the size of the...

Channel systems for conducting monetary policy are becoming increasingly popular. Despite its popularity, the consequences of implementing policy with a channel system are not well understood. We develop a general equilibrium framework of a channel system and study the optimal policy. A novel...