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Liquidity Externalities And The Wallace Conjecture

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  • Amendola, Nicola
  • Ferraris, Leo
  • Mattesini, Fabrizio

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.

Suggested Citation

  • Amendola, Nicola & Ferraris, Leo & Mattesini, Fabrizio, 2021. "Liquidity Externalities And The Wallace Conjecture," Macroeconomic Dynamics, Cambridge University Press, vol. 25(6), pages 1578-1588, September.
    • Handle: RePEc:cup:macdyn:v:25:y:2021:i:6:p:1578-1588_10
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