A model is developed that employs recent developments in the literature on search models of money to capture the distributional effects of monetary policy in a tractable way. Deterministic and stochastic versions of the model are studied. Money is not neutral, and these nonneutralities persist, whether or not the change in the money supply is anticipated or unanticipated. At the optimum, moneta...

M oney is useful in overcoming two types of frictions. First, in barter exchange, money helps to mitigate double-coincidence frictions that arise in developed economies where economic agents are specialized in production and consumption. Second, in trades involving credit, information frictions may imply that one economic agent has difficulty getting another economic agent to accept his or her ...

We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest. Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of in°ation observed in the 1970s. Based on our analysis, we argue for a rule which: (i) raises the nominal interest rate more than on...