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A Price Discrimination Analysis of Monetary Policy

Staff Report 51 | Revised April 1, 1983

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Authors

photo of Neil Wallace

Neil Wallace

John Bryant

A Price Discrimination Analysis of Monetary Policy

Abstract

Monetary policy is analyzed within a model that ignores transaction costs and appeals solely to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in versions of overlapping generations models that contain three assets: government-issued currency and bonds and real capital. It is shown that legal restrictions and the use of both currency and bonds permit the government to levy a discriminatory inflation tax and that such a tax may be better in terms of the Pareto criterion than a uniform inflation tax.


Published In: Review of Economic Studies (Vol. 51, No. 2, April 1984, pp. 279-288) https://doi.org/10.2307/2297692
Published In: The new classical macroeconomics (Vol. 2, 1992, pp. 430-439)

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