The Janus model of money demand

Author:

Faria João Ricardo1,McAdam Peter2

Affiliation:

1. Economics Department Florida Atlantic University Boca Raton Florida USA

2. Research Department European Central Bank Frankfurt am Main Germany

Abstract

AbstractWe derive a new theoretical model of money demand, which reflects backward‐ and forward‐looking preferences in consumption and utility. The former aspect is captured by standard habit formation, and the latter by anticipation of future consumption preferences. By introducing both of these into the Ramsey–Sidrauski framework, we unveil a new highly general model of money demand. We discuss the model in light of the apparent breakdown of money‐demand functions and diminished policy relevance of monetary aggregates.

Publisher

Wiley

Reference48 articles.

1. Asset prices under habit formation and catching up with the Joneses;Abel A.B.;American Economic Review,1990

2. Rules, discretion and reputation in a model of monetary policy

3. Limited Commitment and the Demand for Money

4. Money and Growth: The Case of Long Run Perfect Foresight

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