Creator: Chari, V. V., Jagannathan, Ravi., and Jones, Larry E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 316 Abstract:
In this paper, we characterize those situations in which after the introduction of futures markets there is either an unambiguous change in the volatility of spot prices or an unambiguous change in welfare. We provide examples of the usefulness of this approach by giving two alternative sets of sufficient conditions for price volatility to decline following the introduction of futures trading. We also provide a set of sufficient conditions for the introduction of futures trading to increase the welfare of all agents.
Keyword: Prices, Futures market, and Commodities Subject (JEL): O16 - Economic development - Financial markets ; Saving and capital investment ; Corporate finance and governance
Creator: Manuelli, Rodolfo E. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 252 Abstract:
We study an overlapping generations model which contains a capital good that resembles actual gold. This capital good can he stored without physically depreciating and can, by using other resources, be converted back and forth between gold jewelry which yields utility directly and raw gold which does not. Under the assumption that the three utility-yielding objects—first and second period consumption and jewelry—are gross substitutes, stationary equilibria are shown to exist and are characterized; for some parameter values, there are inefficient equilibria, while for others there are efficient equilibria. Both types can be interpreted as commodity money equilibria.
Cover note : "An earlier version of this paper was presented at a seminar at MIT."
Keyword: Capital goods, Commodity money system, Commodities, Commodity prices, Commodity money equilibrium, and Overlapping generations model Subject (JEL): E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems and D51 - General equilibrium and disequilibrium - Exchange and production economies