An Analysis of Monetary Policy in a Monetary Search Model with Non-unitary Discounting (Originally entitled: A Monetary Search Model with Non-unitary Discounting)

Abstract

Based on findings in the behavioral economics literature, I incorporate non-unitary discounting into a monetary search model to study optimal monetary policy. I apply non-unitary discounting, that is, discount rates that are different across goods. With this extension to the model, I find that there are cases where optimal monetary policy deviates from the Friedman rule.