More on onetary Economics

Abstract Does the cashless limit of the monetary equilibrium converge to the non-monetary equilibrium? We revisit the question in the context of Menzio and Spinella (2025), a model in which the financial market where households lend savings and firms borrow capital is subject to frictions. The fraction of households that do not meet any firms determines money demand. The fractions of households that meet one or multiple firms determine the extent of competition, and the sensitivity of real rates to inflation. The cashless limit of the monetary equilibrium converges to the non-monetary equilibrium depending on whether the financial market becomes perfectly competitive, which, in turn, depends on the exact specification of frictions.