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Creator: Den Haan, Wouter J., 1962- Series: Nonlinear rational expectations modeling group Abstract:
The objective of this paper is to investigate whether, in a Sidrauski type model with uncertainty, welfare maximization calls for following the famous "Chicago Rule". This question will be answered in the affirmative in this paper, i.e. social welfare optimization calls for a zero nominal interest rate on one-period bonds. The zero nominal interest rate, however, does not imply in an uncertain world that there is no systematic difference between the expected rate of deflation and the rate of time preference in an economy without growth. The magnitude of this difference turns out to be small, however. Numerical welfare comparisons are made between the optimal policy and policies in which the growth rate of money is fixed. The optimal policy requires that the monetary authorities react every period to the available information and they choose a growth level of the money stock that will set the interest rate equal to zero. If we compare the time paths of the real variables under the optimal policy with the time paths if the money supply decreases at a rate equal to the rate of time preference, then we see hardly any differences. The price dynamics can be very different, however. The paper also investigates the issue of superneutrality and finds that the quantitative deviations from superneutrality are substantial if a model with a shopping time technology is used. The neo-classical models in this paper are solved numerically using a technique developed in Marcet (1988).
Assujettir: E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Prati, Alessandro, 1961- Series: Monetary theory and financial intermediation Abstract:
The data and press commentaries studied in this paper call for a reinterpretation of the French inflationary crisis and its stabilization in 1926. In contrast with T. J. Sargent's (1984) interpretation, there is evidence that the budgetary situation was well in hand and that only fear of a capital levy made the public unwilling to buy government bonds. As a result, the government had to repay the bonds coming to maturity with monetary financing. Only when Poincare introduced a bill to shift the tax burden off bondholders did the demand for government bonds recover and inflation stop.
Assujettir: E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E65 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - Studies of particular policy episodes, E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy, and N24 - Economic History: Financial Markets and Institutions: Europe: 1913-