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LIQUIDITY EXTERNALITIES AND THE WALLACE CONJECTURE

Published online by Cambridge University Press:  17 October 2019

Nicola Amendola ,
Leo Ferraris  and
Fabrizio Mattesini
Nicola Amendola
Affiliation:
Universita’ di Roma
Leo Ferraris*
Affiliation:
Universita’ di Roma
Fabrizio Mattesini
Affiliation:
Universita’ di Roma Einaudi Institute for Economics and Finance
*
Address correspondence to: Leo Ferraris, Department of Economics and Finance, Universita’ di Roma, Tor Vergata, Via Columbia 2, Rome, Italy. e-mail: [email protected].
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Abstract

This paper presents a pure currency economy with a nondegenerate distribution of money holdings in which, as conjectured by Wallace (Quarterly Journal of Economics 129, 259–274, 2014), there are transfer schemes financed by money creation that improve ex ante welfare relative to no-intervention. Differently from what was advocated by Wallace, pecuniary-like externalities, rather than the need to share liquidity risks, are responsible for the result.

Keywords

MoneyMonetary PolicyWallace Conjecture
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 6 , September 2021 , pp. 1578 - 1588
Copyright
© Cambridge University Press 2019

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