Econometrica: Apr 1980, Volume 48, Issue 3

The Effects of Money Supply on Economic Welfare in the Steady State

https://doi.org/0012-9682(198004)48:3<565:TEOMSO>2.0.CO;2-A
p. 565-576

Laurence Weiss

The theory of monetary policy is examined as it pertains to the functions of money as intermediating intergenerational trade as well as providing a useful service return. Finite economic lives are shown to alter the characterization of the optimal inflation rate from that suggested by models with infinitely long lived agents. In uncertain environments with sequential trade, policy is examined as altering the range of possible trades between agents of successive generations. In some cases, fully anticipated activist feedback policies may increase expected utility from that attainable with passive policies.

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