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Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 518 Abstract:
This paper is about a useful way of taking account of frictions in asset pricing and macroeconomics. I start by noting that complete frictionless markets models have a number of empirical deficiencies. Then I suggest an alternative class of models with incomplete markets and heterogenous agents which can also accommodate a variety of other frictions. These models are quantitatively attractive and computationally feasible and have the potential to overcome many or all of the empirical deficiencies of complete frictionless markets models. The incomplete markets model can also differ significantly from the complete frictionless markets model on some important policy questions.
Palavra-chave: Macroeconomics, Incomplete markets, Frictionless market model, Asset pricing, and Friction Sujeito: G12 - Asset Pricing; Trading Volume; Bond Interest Rates and E13 - General Aggregative Models: Neoclassical
Creator: Aiyagari, S. Rao and Peled, Dan Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 503 Abstract:
It is often argued that with a positively skewed income distribution (median less than mean) a majority voting over proportional tax rates would result in higher tax rates than those that maximize average welfare, and will accordingly reduce aggregate savings. We reexamine this view in a capital accumulation model, in which distorting redistributive taxes provide insurance against idiosyncratic shocks, and income distributions evolve endogenously. We find small differences of either sign between the tax rates set by a majority voting and a utilitarian government, for reasonable parametric specifications. We show how these differences reflect a greater responsiveness of a utilitarian government to the average need for the insurance provided by the tax-redistribution scheme. These conclusions remain true despite the fact that the model simulations produce positively skewed distributions of total income across agents.
Palavra-chave: Votes, Taxes, and Income distribution Sujeito: E62 - Fiscal Policy and D72 - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 424 Palavra-chave: Deficit, Tax policy, Federal government, Taxation, Tax, Tax rates, Taxes , and Budget management Sujeito: H21 - Taxation and Subsidies: Efficiency; Optimal Taxation and H62 - National Deficit; Surplus
Creator: Aiyagari, S. Rao, Wallace, Neil, and Wright, Randall Series: Lucas expectations anniversary conference Abstract:
A pairwise random meeting model with money is used to study the nominal yield on pure-discount, default-free securities that are issued by the government. There is one steady state with matured securities at par and, for some parameters, another with them at a discount. In the former, exogenous rejection of unmatured securities by the government is necessary and sufficient for such a steady state to display a positive nominal yield on unmatured securities. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even if there is no exogenous rejection of unmatured securities.
Palavra-chave: Maturity, Government securities, and Interest rates Sujeito: E02 - Institutions and the Macroeconomy and E43 - Interest Rates: Determination, Term Structure, and Effects
Creator: Aiyagari, S. Rao and McGrattan, Ellen R. Series: Staff Reports (Federal Reserve Bank of Minneapolis) Number: 203 Palavra-chave: Borrowing constraints, Precautionary saving, and Government debt Sujeito: H6 - National Budget, Deficit, and Debt and E60 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - General
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 319 Abstract:
We consider the existence of deterministically cycling steady state equilibria in a class of stationary overlapping generations models with sufficiently long (but, finite) lived agents. Preferences are of the discounted sum of utilities type with a fixed discount rate. Utility functions with large coefficients of relative risk aversion which generate strong income effects (relative to substitution effects) and backward bending offer curves are permitted. Lifetime endowment patterns are quite arbitrary. We show that if agents have a positive discount rate, then as agents1 lifespans get large, short period non-monetary cycles will disappear. Further, constant monetary steady states do not exist and therefore, neither do stationary monetary cycles of any period. We then consider the case where agents have a negative discount rate and show that there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no matter how long agents live.
Palavra-chave: Longevity, Business cycles, Intertemporal choice, and Monetary theory Sujeito: D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making and N10 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 328 Abstract:
One purpose of this article is to exposit the relationship between life cycle models (with constructive immortality) and infinitely lived agents models. We use this to point out problems in interpreting data, especially with regard to the use of interest rates in the class of representative agent models when growth in population and per capita variables is taken into account. We also point out some common misconceptions regarding the "volume of trade" in representative agent models and show how to reconcile the savings profile of the representative agent with the life cycle savings profile in a life cycle model.
Palavra-chave: Calibration, Bequests, Infinitely lived agents, Representative agent models, and Volume of trade Sujeito: D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 376 Abstract:
We describe a simple environment in which assets of varying qualities may be used for transactions and consumption. The quality of an asset is known to the seller but not the buyer. We show that this feature can generate a negative relationship between the transactions velocities of assets and their rates of return. We also discuss several versions of Gresham's Law which hold in this environment.
Palavra-chave: Consumption, Asset quality, Transactions, and Gresham's Law Sujeito: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Aiyagari, S. Rao and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 226 Abstract:
This note presents a model whose competitive equilibrium can be consistent with the observation that current labor market conditions affect the well-being of new entrants more than they do that of senior workers. The model uses the notion that new entrants are not around soon enough to participate in risk-sharing contingent on the shocks that determine the equilibrium marginal products of first-period employment. This timing notion is formalized using a stochastic overlapping generations model.
A version of this paper was presented at the Econometric Society Summer Meeting, Cornell University, June 16-19, 1982.
Sujeito: J21 - Labor Force and Employment, Size, and Structure and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)