Money cycles

Andrew Clausen, Carlo Strub

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money—under efficient monetary policy—is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity. Agents spend their money too quickly—a hot‐potato effect of inflation. We show that inflation can stimulate inefficiently high aggregate output.
Original languageEnglish
Pages (from-to)1279-1298
JournalInternational Economic Review
Volume57
Issue number4
Early online date10 Nov 2016
DOIs
Publication statusPublished - Nov 2016

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