The Distribution of Money Balances and the Non-Neutrality of Money

Abstract

Recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade. Given quasi-linear preferences, this makes the distribution of money degenerate -which keeps the models simple but precludes discussion of distributional e!ects of monetary policy. We generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional e!ects analytically. We show that unexpected, symmetric lump-sum money injections may increase short-run output and welfare, while asymmetric injections may increase long-run output and welfare.

Monetary Policy with Asset-Backed Money

“…This is one distinction between our paper and Lagos and Rocheteau (2008). 4 Second, we do not (although we could) introduce a second asset (such as …at money or government debt). Consequently, monetary policy in our model is restricted to managing the supply of ABM.…”

Optimal Taxes Under Private Information: The Role of Inflation

“…He also shows that the Friedman rule is optimal despite the variance in CM consumption and leisure. 8 Rocheteau et al (2015) study the optimality of in ‡ation in the LW model when CM labor has a binding upper bound. They show that if this upper bound holds for some agents, then the distribution of money holdings is not degenerate and a one-time increase in the money supply can be welfare improving.…”

“…3 For more on the non optimality of the Friedman rule in overlapping generation models we refer to Bhattacharya et al (2005) and Gahvari (2007). For in…nitely lived frameworks we refer to Levine (1991), Molico (2006) and Berentsen, Camera and Waller (2005), just to name a few. 4 The New Dynamic Public Finance literature studies optimal taxation in a dynamic version of Mirrlees' (1971) model where agents are heterogeneous and agents face private information.…”

The distribution of money and prices in an equilibrium with lotteries

“…Recent work has explored this question within the context of models based on the Shi-Trejos-Wright monetary search models where money has a 'fundamental' allocative role. Molico (1997), Deviatov and Wallace (2001), and Berentsen, Camera and Waller (2003) are such examples.…”

“…By considering a model where agents can hold at most two indivisible tokens, Deviatov and Wallace (2001) show that money is non-neutral as it affects the quantities traded and the frequency of trading. Berentsen, Camera and Waller (2003) consider fully-divisible money and goods but focus on simple (two-point) distributions. 2 Changes in the money stock are neutral but changes in the money growth rate affect the distribution and the quantities traded.…”