Money, Interest, and Policy
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Money, Interest, and Policy

Dynamic General Equilibrium in a Non-Ricardian World

By Jean-Pascal Benassy





An important recent advance in macroeconomics is the development of dynamic stochastic general equilibrium (DSGE) macromodels. The use of DSGE models to study monetary policy, however, has led to paradoxical and puzzling results on a number of central monetary issues including price determinacy and liquidity effects. In Money, Interest, and Policy, Jean-Pascal Bénassy argues that moving from the standard DSGE models – which he calls "Ricardian" because they have the famous "Ricardian equivalence" property–to another, "non-Ricardian" model would resolve many of these issues. A Ricardian model represents a household as a homogeneous family of infinitely lived individuals, and Bénassy demonstrates that a single modification–the assumption that new agents are born over time (which makes the model non-Ricardian)–can bridge the current gap between monetary intuitions and facts, on one hand, and rigorous modeling, on the other.

After comparing Ricardian and non-Ricardian models, Bénassy introduces a model that synthesizes the two approaches, incorporating both infinite lives and the birth of new agents. Using this model, he considers a number of issues in monetary policy, including liquidity effects, interest rate rules and price determinacy, global determinacy, the Taylor principle, and the fiscal theory of the price level. Finally, using a simple overlapping generations model, he analyzes optimal monetary and fiscal policies, with a special emphasis on optimal interest rate rules.


Out of Print ISBN: 9780262026130 216 pp. | 9 in x 6 in 14 illus.


$5.75 S ISBN: 9780262524933 216 pp. | 9 in x 6 in 14 illus.


  • This book is a gem. Bénassy has managed the tour de force of presenting concisely the current debate on monetary policy, and of taking it into the little-explored territory of non-Ricardian models. He writes with his usual crispness and sharpness, and the reader comes out of the book's ten chapters wanting to learn more.

    Philippe Weil

    European Centre for Advanced Research in Economics and Statistics, Université Libre de Bruxelles