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Creator: Townsend, Robert M., 1948- Series: Financial history conference Abstract:
ln environments with private information and spatial separation, the ability of agents to establish mutually beneficial arrangements can be limited by their ability to communicate contemporary dealings and histories of past dealings. Indeed, with the extension of some recent work in contract theory and mechanism design, this paper argues that location or person-specific assignment systems, portable object record-keeping systems, written message systems, and telecommunication systems can be viewed as communication systems which are successively more complete in this sense. An attempt is made also to match these various communication systems with systems in use in historical primitive, and/or contemporary societies and to interpret these communication systems as financial structures.
Tema: C44 - Operations Research; Statistical Decision Theory, D83 - Information, knowledge, and uncertainty - Search ; Learning ; Information and knowledge ; Communication ; Belief, and D23 - Organizational Behavior; Transaction Costs; Property Rights
Creator: Prescott, Edward C. and Ríos-Rull, José-Víctor Series: Advances in dynamic economics Abstract:
A necessary feature for equilibrium is that beliefs about the behavior of other agents are rational. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, organizational equilibrium, that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program.
Palabra clave: Rational behavior, Equilibrium, and Overlapping generations Tema: D51 - Exchange and Production Economies and E13 - General Aggregative Models: Neoclassical
Creator: Kiyotaki, Nobuhiro, Matsui, Akihiko, and Matsuyama, Kiminori Series: Monetary theory and financial intermediation Abstract:
Our goal is to provide a theoretical framework in which both positive and normative aspects of international currency can be addressed in a systematic way. To this end, we use the framework of random matching games and develop a two country model of the world economy, in which two national fiat currencies compete and may be circulated as media of exchange. There are multiple equilibria, which differ in the areas of circulation of the two currencies. In one equilibrium, the two national currencies are circulated only locally. In another, one of the national currencies is circulated as an international currency. There is also an equilibrium in which both currencies are accepted internationally. We also find an equilibrium in which the two currencies are directly exchanged. The existence conditions of these equilibria are characterized, using the relative country size and the degree of economic integration as the key parameters. In order to generate sharper predictions in the presence of multiple equilibria, we discuss an evolutionary approach to equilibrium selection, which is used to explain the evolution of the international currency as the two economies become more integrated. Some welfare implications are also discussed. For example, a country can improve its national welfare by letting its own currency circulated internationally, provided the domestic circulation is controlled for. When the total supply is fixed, however, a resulting currency shortage may reduce the national welfare.
Palabra clave: Money as a medium of exchange, Random matching games, Multiple currencies, Best response dynamics, and Evolution of international currency Tema: F31 - Foreign Exchange, D51 - Exchange and Production Economies, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, and C78 - Bargaining Theory; Matching Theory
Creator: Kehoe, Timothy Jerome, 1953-, Kiyotaki, Nobuhiro, and Wright, Randall D. Series: Monetary theory and financial intermediation Abstract:
We extend the analysis of Kiyotaki and Wright, who study an economy in which the different commodities that serve as media of exchange are determined endogenously. Kiyotaki and Wright consider only symmetric, steady-state, pure-strategy equilibria, and find that for some parameter values no such equilibria exist. We consider mixed-strategy equilibria and dynamic equilibria. We prove that a steady-state equilibrium exists for all parameter values and that the number of steady-state equilibria is generically finite. We also show, however, that there may be a continuum of dynamic equilibria. Further, some dynamic equilibria display cycles.
Tema: D51 - Exchange and Production Economies and E40 - Money and Interest Rates: General
Creator: Goenka, Aditya and Spear, Stephen E. Series: Finance, fluctuations, and development Abstract:
This paper develops a dynamic model of general imperfect competition by embedding the Shapley-Shubik model of market games into an overlapping generations framework. Existence of an open market equilibrium where there is trading at each post is demonstrated when there are an arbitrary (finite) number of commodities in each period and an arbitrary (finite) number of consumers in each generation. The open market equilibria are fully characterized when there is a single consumption good in each period and it is shown that stationary open market equilibria exist if endowments are not Pareto optimal. Two examples are also given. The first calculates the stationary equilibrium in an economy, and the second shows that the on replicating the economy the stationary equilibria converge to the unique non-autarky stationary equilibrium in the corresponding Walrasian overlapping generations economy. Preliminary on-going work indicates the possibility of cycles and other fluctuations even in the log-linear economy.
Palabra clave: General equilibirum theory, Game theory, and Overlapping generations model Tema: D50 - General equilibrium and disequilibrium - General, C72 - Game theory and bargaining theory - Noncooperative games, and D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving
Creator: Lacker, Jeffrey Malcolm and Schreft, Stacey Lee Series: Monetary theory and financial intermediation Abstract:
We describe a stochastic economic environment in which the mix of money and trade credit used as means of payment is endogenous. The economy has an infinite horizon, spatial separation and a credit-related transaction cost, but no capital. We find that the equilibrium prices of arbitrary contingent claims to future currency differ from those from one-good cash-in-advance models. This anomaly is directly related to the endogeneity of the mix of media of exchange used. In particular, nominal interest rates affect the risk-free real rate of return. The model also has implications for some long-standing issues in monetary policy and for time series analysis using money and trade credit.
Tema: E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates