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MONEY CYCLES
Author(s) -
Clausen Andrew,
Strub Carlo
Publication year - 2016
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12198
Subject(s) - monetary economics , economics , futures contract , asset (computer security) , inflation (cosmology) , monetary policy , idle , financial transaction , aggregate demand , money measurement concept , endogenous money , microeconomics , velocity of money , finance , computer science , database transaction , physics , computer security , theoretical physics , programming language , operating system
Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money—under efficient monetary policy—is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity. Agents spend their money too quickly—a hot‐potato effect of inflation. We show that inflation can stimulate inefficiently high aggregate output.