Optimal Monetary Impulse-Response Functions in a Matching Model
Brett Katzman, John Kennan, Neil Wallace
NBER Working Paper No. 7425
The effects on ex ante optima of a lag in seeing monetary realizations are studied using a matching model of money. The main new ingredient in the model is meetings in which producers have more information than consumers. A consequence is that increases in the amount of money that occur with small enough probability can have negative impact effects on output, because it is optimal to shut down trade in such low probability meetings rather than have lower output when high probability realizations occur. The information lag also produces prices that do not respond much to current monetary realizations.
Published: “Output and Price Level Effects of Monetary Uncertainty in a Matching Model,” (with Brett Katzman and Neil Wallace), Journal of Economic Theory, 108(2), February 2003, 217-255.