Creator: Litterman, Robert B. and Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 125 Keyword: Natural rate hypothesis, Vector autoregression, and Estimation Subject (JEL): C43 - Index Numbers and Aggregation; Leading indicators, C53 - Forecasting Models; Simulation Methods, and C51 - Model Construction and Estimation
Creator: Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 024 Abstract:
In "Liquidity Preference as Behavior Towards Risk," Tobin suggests that risk aversion and expected utility maximization can provide a rigorous foundation for an equilibrium demand for money. In Tobin's model, money plays a risk reducing role in individual portfolios. This note considers whether a general equilibrium stochastic model can produce equilibrium yield distributions that allow money to play that role if money does not appear directly as an argument in the utility or production functions of the economy. The model examined, a stochastic production variant of Samuelson's model of overlapping generations, cannot produce such yield distributions.
Keyword: Stochastic, Monetary economy, and Risk aversion Subject (JEL): C51 - Model Construction and Estimation, G11 - Portfolio Choice; Investment Decisions, and E41 - Demand for Money