This article examines an environment where money is essential and agents exchange in perfectly competitive, Walrasian markets. Agents consume and produce a homogeneous good, but hold money to purchase consumption in the event of a relatively low productivity shock. A Walrasian market delivers a nondegenerate distribution of money holdings across agents and avoids some of the computational difficulties associated with the market assumption of bilateral bargaining common to search-theoretic environments. The model is calibrated to long-run U.S. velocity, and the welfare costs of inflation are assessed for variable buyer-seller ratios and persistent states of buying and selling.

We examine the bank lending channel (BLC) of monetary transmission in a factor‐augmented vector autoregression (FAVAR). A FAVAR exploits large numbers of macro‐economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels. We find that the existence of the BLC is more prevalent than previously thought using aggregated lending data, while the lending response of individual banks are driven more by specific innovations than monetary shocks. Nonetheless, the average individual bank response to a monetary shock is consistent with the existence of a BLC.

A 1979 change in U.S. monetary policy coincided with a break in the cyclical behavior of monetary aggregates, while the cyclical behavior of all other real and nominal variables remained relatively constant. A model is developed to assess the quantitative importance of a change in monetary policy in accounting for these observations. The monetary authority's reaction function is estimated conditionally on the theoretical model and accounts for upward of 72-95% of all observed changes, including inside money preceding the business cycle and a qualitative change in the cyclical behavior of the monetary base. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

This paper investigates economies of scale (ES) in …nancial intermediation as a source of equilibrium indeterminacy. Consumption in the model can be purchased with currency and deposits, and ES in intermediation implies that deposit costs are decreasing in aggregate deposits. The results suggest that indeterminacy does not depend on a large degree of ES nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any degree of ES, while policies targeting nominal rates eliminates indeterminacy for all degrees of ES.

Given the prestige enjoyed by several economic departments, there is a natural curiosity regarding their contributions to the economic literature. This article, analyses the appearance of all academic institutions worldwide in the eight leading economic journals, the 'Blue Ribbon Eight,' from 1991 to 2005. We cite those institutions who appear the most, and analyse the composition of appearances across all eight journals to assess their degree of diversity. While it is tempting to use these measures as a ranking of institutions, the analysis is meant to be purely an historical appreciation of the contributions of these admirable institutions.

This paper assesses the long-run and short-run (i.e. along the transition path) welfare implications of permanent changes in in ‡ation in an environment with essential money and perfectly competitive markets. The model delivers a monetary distribution that matches moments of the distribution seen in the US data. Although there is potential for wealth redistribution to deliver welfare gains from in ‡ation, the (total) costs of 10 percent in ‡ation relative to zero is over 7 percent of consumption. While these results suggest a dominating real-balance e¤ect of in ‡ation, a politico-economic analysis concludes that the prevailing (majority rule) in ‡ation rate is above the Friedman Rule.

This paper examines a DSGE environment with endogenous excess reserve holdings in the banking sector. Excess reserves act as an extensive margin of bank lending which is inactive in traditional limited participation models where banks hold minimal reserves by assumption. The results of our model suggest that this extensive margin of bank lending can dampen and even overcome the standard liquidity e¤ect of monetary contractions, amplify the output response to productivity shocks, and bring about large, short-run responses to changes in the interest rate paid on reserves.

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