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Working Paper

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.

Suggested Citation

Lagos, Ricardo, and Randall Wright. 2002. “A Unified Framework for Monetary Theory And Policy Analysis.” Federal Reserve Bank of Cleveland, Working Paper No. 02-11.