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The Limits of Monetary Economics
By:Ricardo A. Lagos,Shengxing Zhang (Economics teacher)
Published on 2019 by

We study the transmission of monetary policy in credit economies where money serves as a medium of exchange. We find that -- in contrast to current conventional wisdom in policy-oriented research in monetary economics -- the role of money in transactions can be a powerful conduit to asset prices and ultimately, aggregate consumption, investment, output, and welfare. Theoretically, we show that the cashless limit of the monetary equilibrium (as the cash-and-credit economy converges to a pure-credit economy) need not correspond to the equilibrium of the nonmonetary pure-credit economy. Quantitatively, we find that the magnitudes of the responses of prices and allocations to monetary policy in the monetary economy are sizeable-even in the cashless limit. Hence, as tools to assess the effects of monetary policy, monetary models without money are generically poor approximations- even to idealized highly developed credit economies that are able to accommodate a large volume of transactions with arbitrarily small aggregate real money balances.

This Book was ranked at 19 by Google Books for keyword Monetary economics.

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