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Lawrence R. Klein Lecture 2000: Whither Monetary Economics?

Neil Wallace
International Economic Review
Vol. 42, No. 4 (Nov., 2001), pp. 847-869
Stable URL: http://www.jstor.org/stable/826976
Page Count: 23
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Lawrence R. Klein Lecture 2000: Whither Monetary Economics?
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Abstract

I argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential. The argument has two parts. First, I argue that models in which real balances are assumed to be productive--models with money in utility or production functions or with cash-in-advance constraints--contain hidden inconsistencies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effects of monetary shocks, the welfare cost of inflation, and the roles of inside and outside money.

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