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Real Balance Effects, Timing, and Equilibrium Determination

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  • CHRISTIAN A. STOLTENBERG
Abstract
By assuming that money balances at the beginning instead of at the end of the period provide transaction services, standard results on nominal and real determinacy in monetary models are overturned. The key is that predetermined real money balances can be a state variable. Whereas the determination of the absolute price level typically depends on fiscal policy under an exogenous interest setting, nominal determinacy is now achieved even when fiscal policy is Ricardian. Also, in contrast to the Taylor principle, the interest rate policy should respond passively to changes in inflation, thus ensuring nonoscillatory and locally stable equilibrium sequences.

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  • Christian A. Stoltenberg, 2012. "Real Balance Effects, Timing, and Equilibrium Determination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 981-994, August.
    • Handle: RePEc:wly:jmoncb:v:44:y:2012:i:5:p:981-994
    DOI: 10.1111/j.1538-4616.2012.00518.x
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    Cited by:

    1. Alexander Kriwoluzky & Christian A. Stoltenberg, 2015. "Monetary Policy and the Transaction Role of Money in the US," Economic Journal, Royal Economic Society, vol. 125(587), pages 1452-1473, September.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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