Monetary ECONOMICS Sequential markets and the suboptimality of the Friedman rule
نویسنده
چکیده
A cash-in-advance model with sequential markets is constructed, where unanticipated monetary injections are nonneutral and can potentially produce large liquidity effects. However, if the monetary authority adheres to an optimal money rule, money should not respond to unanticipated shocks, so that a Friedman rule is suboptimal and the monetary authority does not exploit the liquidity effect. Quantitatively, the model can generate variability in money and nominal interest rates close to what is observed, and can produce data with no obvious evidence of the existence of liquidity effects.
منابع مشابه
Alternative Conditions to Time Inconsistency Equilibrium of an International Monetary Policy
Monetary policy rule is an approach to avoid time inconsistency problem as regarded by new classical economist to choose a time plan for policy making in order to maximize householdsâ well-being. The foundation of time inconsistency problem is not coincidence of expectations as an ex-ante variable, which is expected variable, with actual variable as an ex-post variable. Expectations in Finn K...
متن کاملAdverse Selection, Segmented Markets, and the Role of Monetary Policy∗
A model is constructed in which trading partners are asymmetrically informed about future trading opportunties and where spatial and informational frictions limit arbitrage between markets. These frictions create an inefficiency relative to a full information equilibrium, and the extent of this inefficiency is affected by monetary policy. Under some conditions a Friedman rule is optimal, but if...
متن کاملThe Effect of Monetary Policy on Regime Changes of Financial Assets
The main objective of this study was to investigate the effect of monetary policy on changes in the price of financial assets (including foreign exchange, gold and stocks) in Iranian economy. In this regard, this paper answers whether monetary policy could lead to regime changes in asset markets. To answer this question, monthly data during the years 1995 to 2017 and a combination of Markov Swi...
متن کاملIdentifying the adopted Monetary Policy Rule by the Central Bank of Iran
It is obvious that an optimal policy should consider main dimensions of the phenomenon that can affect the transmission mechanism of that policy. In an open economy, it is expected that variables of the foreign sector play important role in its economic behavior. Therefore, it needs that any optimal policy in an open economy to design in such a way which involves changes in the foreign sector. ...
متن کاملThe Impacts of Monetary Policy on Macroeconomic Variables Assuming the Collateral Constraint
This study aimed to examine the effects of monetary policy on macroeconomic variables with regard to the collateral constraint. For this purpose, a dynamic stochastic general equilibrium (DSGE) was developed for Iran’s economic status. Two scenarios were considered as to account for the behavior of the central bank. In the first scenario, the monetary rule is modeled according to the GDP gap an...
متن کامل