This paper develops a general equilibrium model of the clearing and settlement of private payment instruments. Spatial separation, heterogeneous preference shocks and limited communication provide a role for private credit as a means of payment. Although this method could be applied to various...

The Federal Reserve System has historically been criticized for placing too much emphasis on insuring the short-run stability of financial markets and too little emphasis on real sector goals.

This paper presents evidence that throughout the 1973-85 period the Federal Reserve systematically used certain types of discount rate announcements to signal changes in its policy instrument, the Federal funds rate. Market participants understood the signals contained in discount rate...

Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind...

In this paper we document real rate behavior. We do this by looking across a wide variety of constructed real rate series. These series are obtained by using a number of different methodologies for estimating expected inflation, using several different price series, and looking over different...

We consider a monetary growth model in which banks arise to provide liquidity. In addition, there is a government that issues not only money, but interest-bearing bonds; these bonds compete with capital in private portfolios. When the government fixes a constant growth rate for the money stock,...

Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. This literature usually solves for the optimal allocations that are consistent with a rational expectations market equiibrium, but it does not...

Optimal monetary policy maximizes welfare, given frictions in the economic environment. Constructing a model with two sets of frictions - the Keynesian friction of costly price adjustment by imperfectly competitive firms and the Monetarist friction of costly exchange of wealth for goods - we...