In Money, Payments, and Liquidity, Ed Nosal and Guillaume Rocheteau provide a comprehensive investigation into the economics of money and payments by explicitly modeling trading frictions between agents. Adopting the search-theoretic approach pioneered by Nobuhiro Kiyotaki and Randall Wright, Nosal and Rocheteau provide a logically coherent dynamic framework to examine the frictions in the economy that make money and liquid assets play a useful role in trade. They discuss the implications of such frictions for the suitable properties of a medium of exchange, monetary policy, the cost of inflation, the inflation-output trade-off, the coexistence of money, credit, and higher return assets, settlement, and liquidity.
After presenting the basic environment used throughout the book, Nosal and Rocheteau examine pure credit and pure monetary economies, and discuss the role of money, different pricing mechanisms, and the properties of money. In subsequent chapters they study monetary policy, the Friedman rule in particular, and the relationship between inflation and output under different information structures; economies where monetary exchange coexists with credit transactions; the coexistence of money and other assets such as another currency, capital, and bonds; and a continuous-time version of the model that describes over-the-counter markets and different dimensions of liquidity (bid-ask spreads, trade volume, trading delays).
About the Authors
Ed Nosal is Vice President and Senior Research Advisor at the Federal Reserve Bank of Chicago.
Guillaume Rocheteau is Professor of Economics at the University of California, Irvine, and Research Associate at the Federal Reserve Bank of Cleveland.
"This book by Nosal and Rocheteau is essential reading for any economist interested in the topics of its title: Money, Payments, and Liquidity. Based on a rapidly growing literature, the book exploits search theoretic tools to investigate the issues of why money is used, how is its value determined, and what is its role in the allocation of goods and services. The authors' analysis provides fascinating insights into a very important but poorly understood subject."
Dale T. Mortensen, Ida C. Cook Professor of Economics at Northwestern University; Nobel Laureate in Economic Sciences (2010)
"Nosal and Rocheteau have given us the first comprehensive treatment of 'the new monetary theory,' focusing on the role of money in overcoming various types of payment frictions. Because the authors maintain clarity and rigor throughout, the book is an instant classic."
Darrell Duffie, Dean Witter Distinguished Professor of Finance, Stanford University, Graduate School of Business