This paper studies the joint business cycle dynamics of inflation, money growth, nominal and real interest rates and the velocity of money. I extend and estimate a standard cash and credit monetary model by adding idiosyncratic preference shocks to cash consumption as well as a banking sector....

Central bankers’ conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should bedecreased to attain this goal. Real interest rates,...