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*This appendix was written by Danny Quah, a graduate student at Harvard University. 'For simplicity with the and 6j, notation, time is indicated by a subscript in this appendix, rather than parenthetically, as in the paper and other appendixes.

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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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