Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 232 Abstract:
A model of a "real" business cycle is produced in which labor market participants possess private information. A class of economies is considered in which interesting cycles cannot arise without private information. A methodology adapted from Kydland and Prescott (1982) is then employed to show that models based on private information can empirically confront salient features of postwar U.S. business cycles. Moreover, this can be done in a way which is consistent with existing microeconomic evidence on wages and labor supply. Finally, it is shown that the important features of the model related to private information are fairly general.
Keyword: Assymetric information, Labor markets, Labor contracts, and Unemployment Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design and E32 - Business Fluctuations; Cycles
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 202 Abstract:
A model of credit rationing based on asymmetrically informed borrowers and lenders is developed. In this context, sufficient conditions are derived for an appropriate government policy response to credit rationing to be a continuously open discount window. It is also demonstrated that such a policy can be deflationary, and that given a commitment to operate in this way, the monopoly issue of liabilities can Pareto dominate their competitive issuance.
Keyword: Federal lending, Assymetric information, Credit limit, Jaffee-Russel model, and Government loans Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design, E51 - Money Supply; Credit; Money Multipliers, and H81 - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 382 Abstract:
A model with private information is constructed that supports conventional arguments for a government monopoly in supplying circulating media of exchange. The model also yields predictions, including rate-of-return dominance of circulating media of exchange, that are consistent with observations from free banking regimes and fiat money regimes. In a laissez faire banking equilibrium, fiat money is not valued, and the resulting allocation is not Pareto optimal. However, if private agents are restricted from issuing circulating notes, there exists an equilibrium with valued fiat money that Pareto dominates the laissez faire equilibrium and is constrained Pareto optimal.
Keyword: Currency, Fiat money, Assymetric information, Monetary economics, Monetary exchange, Private information, Laissez faire banking, Free banking, and Money Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems