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Wealth effects of open market operations and optimal monetary policy

Authors
Journal
Journal of Monetary Economics
0304-3932
Publisher
Elsevier
Publication Date
Volume
17
Issue
2
Identifiers
DOI: 10.1016/0304-3932(86)90029-2
Disciplines
  • Economics

Abstract

Abstract Equilibrium models of the business cycle such as those developed by Lucas (1973) and Barro (1976), Barro (1980) are often used to analyze the effects of monetary disturbances on the economy. These models typically view monetary injections as arising through lump-sum transfer payments that are independent of an agent's holdings of money. This paper examines the effects caused by misperceptions about money for the more realistic case when money is injected through open market operations. The major result is that unperceived open market operations have a negative wealth effect.

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