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Creator: Gintis, Herbert. Series: Monetary theory and financial intermediation Abstract:
This paper develops the Kiyotaki-Wright model of monetary general equilibrium in which trade is bilateral and enforced by requiring that transactions be quid pro quo, and studies which goods are chosen, and under what conditions, as media of exchange. We prove the existence of a rational expectations equilibrium in which agents' expectations concerning trading opportunities are realized in the present and all future periods. We also show that, exceptional cases aside, no rational expectations barter equilibrium exists; that an equilibrium generally supports multiple money goods; and that a fiat money (i.e., a good that is produced, has minimum storage costs, but is not consumed) cannot be traded in rational expectations equilibrium.
Tema: C62 - Mathematical methods and programming - Existence and stability conditions of equilibrium and D51 - General equilibrium and disequilibrium - Exchange and production economies
Creator: Bullard, James. and Russell, Steven. Series: Finance, fluctuations, and development Abstract:
We examine the conditions under which steady states with low real interest rates—real rates substantially below the output growth rate—exist in an overlapping generations model with production, capital accumulation, a labor-leisure trade-off, technological progress, and agents who live for many periods. The number of periods in an agent's life (n) is left open for much of the analysis and determines the temporal interpretation of a time period. The qualitative properties of the model are largely invariant to different values of n. We find that two low real interest rate steady states exist for empirically plausible values of the parameters of the model. Outside liabilities such as fiat currency or unbacked government debt are valued in one of these steady states.
Palabra clave: General equilibrium models, Interest rates, and Debts, Public Tema: D51 - General equilibrium and disequilibrium - Exchange and production economies and E40 - Money and interest rates - General
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: 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: Overlapping generations model, General equilibirum theory, and Game theory Tema: D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving, C72 - Game theory and bargaining theory - Noncooperative games, and D50 - General equilibrium and disequilibrium - General
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: 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: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates and E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems
Creator: Azariadis, Costas. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Finance, fluctuations, and development Abstract:
We study a variant of the one-sector neoclassical growth model of Diamond in which capital investment must be credit financed, and an adverse selection problem appears in loan markets. The result is that the unfettered operation of credit markets leads to a one-dimensional indeterminacy of equilibrium. Many equilibria display economic fluctuations which do not vanish asymptotically; such equilibria are characterized by transitions between a Walrasian regime in which the adverse selection problem does not matter, and a regime of credit rationing in which it does. Moreover, for some configurations of parameters, all equilibria display such transitions for two reasons. One, the banking system imposes ceilings on credit when the economy expands and floors when it contracts because the quality of public information about the applicant pool of potential borrowers is negatively correlated with the demand for credit. Two, depositors believe that returns on bank deposits will be low (or high): these beliefs lead them to transfer savings out of (into) the banking system and into less (more) productive uses. The associated disintermediation (or its opposite) causes banks to contract (expand) credit. The result is a set of equilibrium interest rates on loans that validate depositors' original beliefs. We investigate the existence of perfect foresight equilibria displaying periodic (possibly asymmetric) cycles that consist of m periods of expansion followed by n periods of contraction, and propose an algorithm that detects all such cycles.
Palabra clave: Interest rates, Equilibrium, Credit markets, and Business cycles Tema: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E44 - Money and interest rates - Financial markets and the macroeconomy, O41 - One, Two, and Multisector Growth Models, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles