TY  - JOUR
AU  - Krugman,Paul R.
AU  - Persson,Torsten
AU  - Svensson,Lars E.O.
TI  - Inflation, Monetary Velocity, and Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 987
PY  - 1982
Y2  - September 1982
UR  - http://www.nber.org/papers/w0987
L1  - http://www.nber.org/papers/w0987.pdf
N1  - Author contact info:
Paul R. Krugman
Department of Economics
Princeton University
Woodrow Wilson School
Princeton, NJ  08544
Tel: 609/258-4570
Fax: 609/258-2809
E-Mail: pkrugman@princeton.edu

Torsten Persson
Torsten and Ragnar Soderberg Chair in Economic Sci
Institute for International Economic Studies
Stockholm University
SE-106 91 Stockholm
SWEDEN
Tel: +46 8 163066
Fax: +46 8 6747801
E-Mail: Torsten.Persson@iies.su.se

Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se
AB  - This paper develops a simple general equilibrium model of a monetary economy with a capital market, in which monetary demand arises from a "cash-in-advance" constraint rather than from any direct role in the utility function. Uncertainty gives rise to a meaningful portfolio choice between money and bonds. We show that monetary velocity is increasing in the rate of inflation, and that the optimal monetary policy is that which maximizes real balances. We also show that the real rate of interest is not invariant to monetary policy: inflation lowers the real rate.
ER  -