Based on findings in the behavioral economics literature, I incorporate non-unitary discounting into a monetary search model to study optimal monetary policy. I apply non-unitary discounting, that is, discount rates that are different across goods. With this extension to the model, I find that...

This paper investigates the role of fiat money in decentralized markets, where producers have private information about the quality of the goods they supply. Money is divisible, terms of trade are determined endogenously, and agents can finance their consumption with money or with real...

Recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade. Given quasi-linear preferences, this makes the distribution of money degenerate - which keeps the models simple but...

The target problem considers the central bank's use of optimal tools and targets for purposes of stabilization and welfare optimization. In this study, this question is answered anew in a microfounded approach. By adding imperfect information to the model of [Berentsen and Waller, 2011], a...

There is a profound misconception amongst certain commentators on money and banking: that quantitative easing creates new money. The misconception is either: (1) that new money is injected into the economy; (2) newly created excess reserves can be used by the banks to make new loans. Neither of...

We study several popular monetary models which generate a nondegenerate stationary distribution of money holdings. Across these environments, our principal finding is as follows: a monetary policy that sets long run nominal interest rates to zero (the Friedman rule) does not typically maximize...

Our model for computing the Ramsey optimal inflation tax includes several models from the previous literature as special cases. The model highlights the various assumptions in that literature which have led to such different results, assumptions which relate to the interest and scale...

In this paper we propose a simple and general model for computing the Ramsey optimal inflation tax, which includes several models from the previous literature as special cases. We show that it cannot be claimed that the Friedman rule is always optimal (or always non--optimal) on theoretical...

This paper views the policy response to the recent financial crisis from the perspective of Milton Friedman's monetary economics. Five major aspects of the policy response are: 1) discount window lending has been provided broadly to the financial system, at rates low relative to the market rates...

It is considered inapt for central banks to adjust reserve money (quantity of money) and interest rate (price of money) at the same time. Thus, necessitates the need for a choice instrument. Enough evidence abounds in microeconomic theory on the undesirability of manipulating both price and...