This study provides strong evidence for the stability of money demand of a semi-log form for the U.S., a log-log form for Japan and a semi-log form for Australia. This implies that there could be no finite satiation on the money demand curve as the nominal interest rate approaches zero and continue to stay near zero for a long period of time. The results support Friedman’s (1969) zero nominal i...

Since John Taylor’s (1993) seminal paper, a large literature has argued that active interest rate feedback rules, that is, rules that respond to increases in inflation with a more than one-for-one increase in the nominal interest rate, are stabilizing. In this paper, we argue that once the zero bound on nominal interest rates is taken into account, active interest-rate feedback rules can easily...

I formulate a search-based asset-pricing model where equity shares and fiat money can be used as means of payment. I characterize a family of optimal stochastic monetary policies. Every policy in this family implements Friedman’s prescription of zero nominal interest rates. Under an optimal policy, equity prices and returns are independent of monetary considerations. I also study a perturbation...

The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary e¤ects, with ‡exible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We …nd evidence for structural breaks in the nominal oil price that are used to i...

I nvestors and market analysts generally believe that the yield on a nominal bond includes an inflation risk premium to compensate investors for bearing the inflation risk associated with the bond. Knowing how much of a risk premium investors require on nominal bonds can be valuable information for policymakers. For government Treasuries, the size of the risk premium represents the potential in...