Anticipated Monetary Policy in a Cash-In-Advance Economy

1989 ◽  
Vol 22 (1) ◽  
pp. 93 ◽  
Author(s):  
Benoit Carmichael
Keyword(s):  
Monetary Policy ◽  
Cash In Advance

Optimal fiscal and monetary policy under different fiscal instruments

2020 ◽  
Vol 48 (1) ◽  
pp. 167-190
Author(s):  
Mehrab Kiarsi
Keyword(s):  
Monetary Policy ◽  
Inflation Rate ◽  
Dynamic Properties ◽  
Sticky Prices ◽  
New Keynesian ◽  
Content Type ◽  
Friedman Rule ◽  
Keynesian Model ◽  
Fiscal And Monetary Policy ◽  
Cash In Advance

PurposeThe paper includes characterizing Ramsey policy in a cash-in-advance monetary model, under flexible and sticky prices, and with different fiscal instruments.Design/methodology/approachThe paper analytically and numerically characterizes the dynamic properties of Ramsey allocations. The author computes dynamics by solving second-order approximations to the Ramsey planner’s policy functions around a non-stochastic Ramsey steady state.FindingsThe Friedman rule is not mainly optimal in a cash-in-advance model with distorting taxes. The Ramsey-optimal policy with both taxes on income and consumption calls for a high inflation rate that is extremely volatile, despite the fact that changing prices is costly.Practical implicationsThe optimality of zero nominal interest rate under flexible prices in monetary models is not mainly the case and quite depends on the preferences. The optimality of a zero inflation rate under sticky prices also very much depends on the assumed set of fiscal instruments.Originality/valueThe non-optimality of the Friedman rule under flexible prices is quite new. Moreover, studying the optimal fiscal and monetary policy in a New Keynesian model with a rich set of fiscal instruments is also quite original.

scholarly journals CASH-IN-ADVANCE CONSTRAINTS, BUBBLES, AND MONETARY POLICY

2005 ◽  
Vol 9 (1) ◽  
pp. 28-56 ◽  
Author(s):  
PHILIPPE MICHEL ◽  
BERTRAND WIGNIOLLE
Keyword(s):  
Monetary Policy ◽  
Overlapping Generations ◽  
Overlapping Generations Model ◽  
Equilibrium Dynamics ◽  
Cash In Advance

In this paper, we study the equilibrium dynamics of an overlapping generations model with capital, money, and cash-in-advance constraints. At each period, the economy can experience two different regimes: Either the cash-in-advance constraint is binding and money is a dominated asset, or the constraint is strictly satisfied and money has the same return as capital. When the second regime occurs, we say that the economy experiences a temporary bubble. We show the existence of temporary bubbles, and we prove that cyclical equilibria may exist. In these equilibria, the economy experiences some periods without bubbles and some periods with bubbles. We also show that monetary creation can be used to eliminate temporary bubbles.

DOES THE TIMING OF THE CASH-IN-ADVANCE CONSTRAINT MATTER FOR OPTIMAL FISCAL AND MONETARY POLICY?

2009 ◽  
Vol 13 (S1) ◽  
pp. 133-150 ◽  
Author(s):  
Sanjay K. Chugh
Keyword(s):  
Political Economy ◽  
Monetary Policy ◽  
Financial Markets ◽  
Ad Hoc ◽  
Monetary Economics ◽  
High Variability ◽  
Precise Timing ◽  
Fiscal And Monetary Policy ◽  
Very High ◽  
Cash In Advance

I demonstrate that the precise timing of financial markets and goods markets in a simple cash good/credit good model does not matter for the main results in the Ramsey literature on optimal fiscal and monetary policy. In Ramsey models based on Lucas and Stokey [Journal of Monetary Economics12, 55–93 (1983)] and Chari, Christiano, and Kehoe [Journal of Money, Credit, and Banking23, 519–539 (1991)], nominal money holdings are freely adjustable in response to shocks in the period in which they will be used to purchase consumption. In contrast, under Svensson [Journal of Political Economy93, 919–944 (1985)] timing, nominal balances cannot be adjusted in the period they will be used. The broad finding is that benchmark Ramsey results are not very sensitive to this slight, ultimately ad hoc, modification. In particular, optimal inflation continues to display very high variability just as in the original models, although this can differ depending on exactly which exogenous processes are driving the economy. That the basic results in the Ramsey literature are not sensitive to the choice of cash/credit timing is reassuring as Ramsey analysis is applied to an ever-expanding set of model environments.

scholarly journals Liquidity Traps and Monetary Policy: Managing a Credit Crunch

2020 ◽  
Vol 12 (3) ◽  
pp. 110-138
Author(s):  
Francisco J. Buera ◽  
Juan Pablo Nicolini
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Financial Crisis ◽  
The United States ◽  
Credit Crunch ◽  
Fiscal Policies ◽  
Collateral Constraint ◽  
Cash In Advance

We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces some features of the financial crisis that unraveled in 2007 in the United States. We use the model to study the effects, following a credit crunch, of alternative monetary and fiscal policies. (JEL E31, E44, E52, E62, G01, H63)

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