A theory of money needs a proper place for financial intermediaries. Intermediaries diversify risks and create inside money. In downturns, micro-prudent intermediaries shrink their lending activity, fire-sell assets and supply less inside money, exactly when money demand rises. The resulting Fisher disinflation hurts intermediaries and other borrowers. Shocks are amplified, volatility spikes an...

This paper studies optimal monetary policy under imperfect credibility in a New Keynesian model with staggered price and wage setting. In our framework, the central bank commits to plan but occasionally reneges on past promises given common knowledge probability. We find that welfare gains from increasing are approximately linear initial level. also output-inflation stabilisation trade-off is n...

In a standard overlapping generations model, active monetary policy reinforces mechanisms that lead to equilibrium indeterminacy and to countercyclical behavior of young-age consumption. The policy rule which minimizes inflation volatility can be active or passive, depending on the characteristics of shocks and the risk aversion of households. Inflation forecast errors are always greater under ...

The paper re-examines whether the Federal Reserve’s monetary policy was a source of instability during Great Inflation by estimating sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage rigidity finds that Reserve responded aggressively to inflation but negligibly output gap. In presence...

We present a micro-founded search-theoretical model of money in which agents are subject to idiosyncratic liquidity shocks as well as aggregate productivity and monetary shocks. Monetary policy has redistributive effects and persistent effects on output and prices: aggregate shocks will propagate and diffuse gradually as the money distribution adjusts over time. The model is used to study the c...

What should be the appropriate macroeconomic policy to minimize the volatility of output in a resource-based economy, i.e. in an economy that is highly dependent on export of resources with very volatile world prices? This paper examines the sources of volatility of output in Russia as compared to other countries and concludes that in 1994-2004 volatility of Russian growth rates was mostly asso...