Lawrence R. Klein Lecture 2000 whither monetary economics?

I argue that monetary economics should be pursued by applying implementatio n theory to models which contain explicit frictions that make money essenti al. The argument has two parts. First, I argue that models in which real ba lances are assumed to be productive-models with money in utility or product ion functions or with cash-in-advance constraints-contain hidden inconsiste ncies. Second, I argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics: the effec ts of monetary shocks, the welfare cost of inflation, and the roles of insi de and outside money.