recognition to the intertemporal nature of households' saving decisions. Like traditional IS-LM, however, the optimizing version … tends to understate the value of money as an indicator for monetary policy. …

We examine the role of money, allowing for three competing environments: the New Keynesian model with separable utility … and static money demand; a non-separable utility variant with habit formation; and a version with adjustment costs for … holding real balances. The last two variants imply forward-looking behavior of real money balances, as it is optimal for …