We construct a monetary economy in which agents face aggregate demand shocks and heterogeneous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy the central bank can implement, not all agents are satiated at the zero lower bound and...

The authors analyze a dual-currency search model in which agents may hold multiple units of both currencies. They study equilibria in which the two currencies are identical and equilibria in which the two currencies differ according to the magnitude of the "inflation tax" risk associated with...

The objective of this paper is to study optimal fiscal and monetary policy in a dynamic Mirrlees model where the frictions giving rise to money as a medium of exchange are explicitly modeled. The framework is a three period OLG model where agents are born every other period. The young and old...

We study the effects of money (anticipated inflation) on capital formation. Previous papers on this topic adopt reduced-form approaches, putting money in the utility function or imposing cash in advance, but use otherwise frictionless models. We follow a literature that is more explicit about...

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...

The authors study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. The equilibrium value of the two currencies, their transaction velocities and agents' spending patterns are endogenously determined. The authors derive conditions under which agents...

We study how currency restrictions and government transaction policies affect the values of fiat currencies in a two country, divisible good, search model. We show that these policies can generate equilibria where both currencies circulate as medium of exchange and where currency exchange occurs...

Monetary search models are valuable for studying how a second currency's acceptability arises endogenously in an economy that lacks a stable domestic currency and other more sophisticated payment systems. Search models' basic assumptions (absence of credit, lack of smoothly functioning banking...