Working Paper 595

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Optimal Monetary Impulse-Response Functions in a Matching Model

Brett Katzman
John Kennan
Neil Wallace - Consultant

Published September 1, 1999

Abstract
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.


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