The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

We study the interplay between competition and trust as efficiency-enhancing mechanims in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a...

Monetary theory and policy are part of intertemporal public finance. This Paper reviews some interesting recent developments. The two ghosts are the venerable liquidity trap and the Pigou effect or real balance effect. The eccentricities are negative nominal interest rates and the helicopter...

This Paper examines characterizations of the dynamics for first and second moments of the one-month interest rate, the 12-month excess bond return and exchange rates. The countries considered are the US, Germany, Japan and the UK. Our tests are based on the implications of multi-country versions...

In this Paper, we ask whether our empirical and theoretical knowledge about the effect of monetary policy shocks is robust to the choice of the period length. We think that such a question is particularly relevant in the monetary literature, as frictions are often introduced under the form of a...

This paper contributes to the empirical and theoretical knowledge of gross credit flows: the simultaneous process of credit expansion and contraction associated with a net change in the aggregate quantity of credit. Empirically, the paper summarizes heterogeneity in the banking industry by...

The origins of stagflation and the possibility of its recurrence continue to be an important concern among policymakers and in the popular press. It is common to associate the origins of the Great Stagflation of the 1970s with the two major oil price increases of 1973/74 and 1979/80. This paper...

In an attempt to clean up an unruly literature, we specify the necessary and sufficient conditions for household optimality in a model where money is the only financial asset and provide the relevant proofs. We use our results to analyse when deflationary bubbles can and cannot exist. Our...

The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its inter-temporal budget constraint. Second, Woodford’s fiscal theory of the price level, according to which...

In this Paper we analyse how monetary policies will be affected in a cashless society. Our main conclusions are that the central bank will lose its traditional instruments of monetary policy. Open market operations and advances to banks will become ineffective as instruments to control the...