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New Monetarism in Continuous Time: Methods and Applications

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  • Michael Choi
  • Guillaume Rocheteau

Abstract

We develop a New Monetarist model in continuous time where agents trade continuously in competitive markets and infrequently in pairwise meetings. Agents can produce and consume both in flows over time intervals and in discrete quantities at points in time. We detail the methodology to solve individual optimisation problems and characterise the full set of perfect foresight equilibria. We illustrate the role of continuous time and the tractability of our approach with three applications related to monetary policy: (i) forward guidance with policy announcements; (ii) aggregate demand management and firm entry; (iii) open market operations with partially liquid assets.

Suggested Citation

  • Michael Choi & Guillaume Rocheteau, 2021. "New Monetarism in Continuous Time: Methods and Applications," The Economic Journal, Royal Economic Society, vol. 131(634), pages 658-696.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:634:p:658-696.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa093
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    Cited by:

    1. Antonio Rodriguez‐Lopez, 2021. "Liquidity and the International Allocation of Economic Activity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 789-830, May.
    2. Zachary Bethune & Guillaume Rocheteau & Tsz-Nga Wong & Cathy Zhang, 2022. "Lending Relationships and Optimal Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 1833-1872.
    3. Georgy A. Borshchevskiy, 2021. "Assessment of the state programmes management model in the Russian Federation," Upravlenets, Ural State University of Economics, vol. 12(5), pages 2-20, November.
    4. Rocheteau, Guillaume & Wang, Lu, 2023. "Endogenous liquidity and volatility," Journal of Economic Theory, Elsevier, vol. 210(C).
    5. Choi, Michael & Rocheteau, Guillaume, 2023. "A model of retail banking and the deposits channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 127-147.

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