Creator: Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 251 Abstract:
Different conclusions about the effects of open market operations are reached even among economists using full employment and rational expectations models. I show that these can be attributed to different assumptions regarding (i) the concept of the deficit that is held fixed in the face of an open market operation, (ii) diversity among agents, and (iii) the features generating money demand. With regard to (iii), I argue that plausible ways of explaining the holding of low-return money preclude the kind of perfect credit markets needed to obtain Ricardian equivalence.
This paper was presented for the International Seminar in Public Economics, held in February 1984 at the University of California at Santa Cruz.
Keyword: Open market purchases, Deficit, Ricardian equivalency, and Money demand Subject (JEL): E41 - Money and interest rates - Demand for money and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 24 Abstract:
In "Liquidity Preference as Behavior Towards Risk," Tobin suggests that risk aversion and expected utility maximization can provide a rigorous foundation for an equilibrium demand for money. In Tobin's model, money plays a risk reducing role in individual portfolios. This note considers whether a general equilibrium stochastic model can produce equilibrium yield distributions that allow money to play that role if money does not appear directly as an argument in the utility or production functions of the economy. The model examined, a stochastic production variant of Samuelson's model of overlapping generations, cannot produce such yield distributions.
Keyword: Monetary economy, Stochastic, and Risk aversion Subject (JEL): C51 - Econometric modeling - Model construction and estimation, G11 - General financial markets - Portfolio choice ; Investment decisions, and E41 - Money and interest rates - Demand for money