onetary Economics at 30: A Reexamination of the Relevance of Money in Cashless Limiting Monetary Economies

The well-known cashless-limiting result in Woodford (1998) has become the theoretical foundation for a large body of work that treats the costs and benefits of holding money as irrelevant for monetary transmission. I reexamine this result and find that it relies on a peculiar credit-market structure consisting of perfectly competitive, zero-interest deferred payment arrangements. I show that the result breaks down when the microstructure is generalized to allow for an endogenous interest rate and market power in credit intermediation. The tenuousness of this influential result should give pause to the widespread practice of basing monetary policy advice on models without money.