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RWP 23-04, May 2023

We derive a general “Janus” money demand function that reflects backward- and forward-looking habit formation. The scope of our model allows us to explain the breakdown of money-demand functions and reduced 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.

JEL classifications: E41, E5, E61, E71.

Article Citation

  • Faria, João Ricardo, and Peter McAdam. 2023. “Janus’s Money Demand and Time Inconsistency: A New Impossibility Theorem?” Federal Reserve Bank of Kansas City, Research Working Paper no. 23-04, May. Available at External Link


Peter McAdam

Sr. Research and Policy Advisor

Peter McAdam is a Senior Research and Policy Advisor in the Economic Research Department of the Federal Reserve Bank of Kansas City. Previously, Mr. McAdam worked at the research…