Walras' Law in stochastic macro models. The example of the optimal monetary instrument.

Publication: Working/Discussion PaperWU Working Paper


This note demonstrates that the shocks explicitly modeled as well as those implicitly present in stochastic macro-models must obey a restriction derived from Walras' law. In the standard case of statistical independence of real and monetary shocks there must be a financial shock to bond demand that mirrors those shocks, bond holdings thus acting in fact as buffer stocks. As an example the choice of the optimal monetary instrument is examined for the converse case of buffer-stock money and compared with the standard case.
Original languageEnglish
Place of PublicationVienna
PublisherInst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business
Publication statusPublished - 2002

Publication series

NameDepartment of Economics Working Paper Series

WU Working Paper Series

  • Department of Economics Working Paper Series

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