SFB 303 Discussion Paper No. A - 055
Author: Bester, Helmut
Title: Open Market Operations and the Nonneutrality of Money
Abstract: This paper analyzes open market operations and welfare in the steady state. Because of imperfections in
credit and futures markets, optimizing agents hold both fiat money and a productive asset with different rates of
return. Open market operations consist of government purchases of the productive asset and selling its return for
money. They are shown to affect private consumption and portfolio holdings in the steady state. The welfare
maximizing monetary policy uses open market operations to deflate the supply of money and the price level.
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Creation-Date: May 1986
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