A Unified Framework for Monetary Theory And Policy Analysis

Search-theoretic models of monetary exchange are based on explicit description of the frictions that make money essential. However, tractable versions usually have strong assumptions that make them ill-suited for discussing some policy questions, especially those concerning changes in the money supply. Hence most policy analysis uses reduced-form models. We propose a framework that attempts to bridge this gap: it is based explicitly on microeconomic frictions, but allows for interesting macroeconomic policy analyses. At the same time, the model is analytically tractable and amenable to quantitative analysis.