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Ricardian Equivalence and Money Dominated in Return: Are they Mutually Consistent Generally?

Working Paper 251 | Published May 1, 1984

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Ricardian Equivalence and Money Dominated in Return: Are they Mutually Consistent Generally?

Abstract

Different conclusions about the effects of open market operations are reached even among economists using full employment and rational expectations models. I show that these can be attributed to different assumptions regarding (i) the concept of the deficit that is held fixed in the face of an open market operation, (ii) diversity among agents, and (iii) the features generating money demand. With regard to (iii), I argue that plausible ways of explaining the holding of low-return money preclude the kind of perfect credit markets needed to obtain Ricardian equivalence.