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We derive a very general ("Janus") money demand function, which reflects backward and forward-looking habit formation. This generality offers an explanation for the breakdown of money-demand functions and policy relevance of monetary aggregates. Integrating our Janus money demand into a Barro-Gordon framework reveals new insights for time inconsistency in monetary policy, and a new impossibility theorem.
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Ricardo et al. (2023) studied this question.
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