This paper studies the implication of banks' money creation and liquidity management for monetary policy. When borrowing fiat money banks use a government bond as collateral, which pays a fixed stream of nominal dividend. A variation in fiat money's quantity alters its unit real value, thereby...

The paper presents empirical evidence on the long-run neutrality of monetary policy in the UK based on the methodology developed by Fisher and Seater. Money is found to be long-run neutral with respect to real GDP and real equity prices. However, in the short to medium term permanent positive...

Lucas (1972) is the pathbreaking analysis of the neutrality and temporary non-neutrality of money. But our central banks set interest rate targets, and do not even pretend to control money supplies. How is inflation determined under an interest rate target?