I'm having trouble imagining this scenario of real interest on reserves because I tend to think of the equilibrium real rate as exogenous, determined by the world market. Thus if the central bank matches that real rate somehow, we have equilibrium, but it is unstable because slight deviation from the equilibrium real rate opens up an arbitrage opportunity. This doesn't really have anything to do with a special role for money as exchange medium.

Thanks! I guess I've been wrongly labeling Nick a market monetarist as well! I'm glad someone finally pointed it out.

I think the central bank should decide how the technological innovation affects the marginal product of labour, and adjust its target for the real wage accordingly. I think that George Selgin nails it, though he seems to be regarded as a market monetarist. Indeed he writes about NGDP targeting.

Frank it would be interesting to find that the price of haircuts is correlated with some measures of unemployment and not with others. I think that Nick is simply pointing out that the price of haircuts matters much more for macroeconomic stabilization than the price of apples does, because haircuts are a very labour-intensive product.

I'm thinking that if we want to maintain labour market equilibrium (full employment) it is better to stabilize the price of the labour-intensive good, which in this case is probably the haircut. But it is somewhat difficult to discuss this without a more complete picture of how workers spend their incomes (with a large fraction going to rent on land).

You say that the economy produces two goods. One might wonder why it matters which one is chosen as numeraire. I think the key is to explain how this choice affects factor prices - land and labour, which are contracted with long-term agreements that are mostly fixed in nominal terms. Whereas most of us buy apples on the spot market.

It seems to be a fine model for the real value of government debt (including the money stock), but FTPL is a poor name for it because it does not really examine the price level. You are right that we need to look at money demand and the quantity of money to say where exactly the price level will be.

If we are going to focus on central bank and treasury balance sheets, then I think that Nick's analogy to stock splits is particularly helpful. Without any announcements of QE or tax rate adjustments, there are no changes to these balance sheets in real terms, and increasing R is a purely nominal adjustment. I'm a newcomer to this analysis and hope I'm not missing something.

Yes, in terms in csissoko's "New Monetarism" LETS do help reduce search costs. But I think you and some others are also asking how the over-issuance of LETS is prevented, so that they are only used to meet the needs of trade, by qualified borrowers. I believe csissoko tackles this general question in her paper on Real Bills and trade credit, and I wonder how much of that analysis carries over to the LETS system.

Nick, I think you're right: Bitcoin can be a numeraire because it is a base money. But LETS is a system of credit and thus relies on a base, outside money.

Yes Bitcoin definitely imposes the cash-in-advance constraint that you write about, csissoko, while LETS does not. I like Nick Rowe's occasional reminders that in addition to elasticity, we also need a nominal anchor for our money, and this makes LETS dependent on an external numeraire. But I think you are pointing out that Bitcoin is similarly dependent because we cannot have an equilibrium if people try to use Bitcoin as the numeraire.