Working Paper 568

Short-Run and Long-Run Effects of Changes in Money in a Random Matching Model

Neil Wallace

Revised October 1, 1996

Using an existing random matching model of money, I show that a once-for-all change in the quantity of money has short-run effects that are predominantly real and long-run effects that are in the direction of being predominantly nominal provided (i) the quantity of money is random and (ii) people learn about what happened to it only with a lag. The change in the quantity of money comes about through a random process of discovery that does not permit anyone to deduce the aggregate amount discovered when the change actually occurs.

Published In: Journal of Political Economy (Vol. 105, No. 6, December 1997, pp. 1293-1307)

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