Creator: Townsend, Robert M., 1948- and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 209 Abstract:
We use a model of pure, intertemporal exchange with spatially and information-ally separated markets to explain the existence of private securities which circulate and, hence, play a prominent role in exchange. The model, which utilizes a perfect foresight equilibrium concept, implies that a Schelling-type coordination problem can arise. It can happen that the amounts of circulating securities that are required to support an equilibrium and that are issued at the same time in informationally separated markets must satisfy restrictions not implied by individual maximization and market clearing in each market separately.
Keyword: Trade, Schelling pure coordination game, and Debts Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and G14 - General financial markets - Information and market efficiency ; Event studies
Creator: Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 386 Abstract:
In a monetary model, it is shown that if there is a unique Pareto inefficient barter equilibrium, then a monetary equilibrium exists when traders are sufficiently patient.
Keyword: Consumers, Monetary equilbria, Money, Barter equilibria, and Inflation 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
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
Creator: Prescott, Edward C. and Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 203 Abstract:
General competitive analysis is extended to cover a dynamic, pure-exchange economy with privately observed shocks to preferences. In the linear, infinite-dimensional space containing lotteries we establish the existence of optima, the existence of competitive equilibria, and that every competitive equilibrium is an optimum. An example illustrates that rationing and securities with contrived risk have an equilibrium interpretation.
Keyword: Pure exchange, Lotteries, and Competitive equilibria Subject (JEL): D82 - Information, knowledge, and uncertainty - Asymmetric and private information 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.
Keyword: General equilibrium models, Interest rates, and Debts, Public Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and E40 - Money and interest rates - General
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.
Subject (JEL): C62 - Mathematical methods and programming - Existence and stability conditions of equilibrium and D51 - General equilibrium and disequilibrium - Exchange and production economies
Creator: Kehoe, Timothy Jerome, 1953-, Kiyotaki, Nobuhiro., and Wright, Randall. 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.
Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and E40 - Money and interest rates - General
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.
Keyword: Equilibrium, Rational behavior, and Overlapping generations Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and E13 - General aggregative models - Neoclassical
Creator: Eichenbaum, Martin S. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 148 Description:
This document is a 17-page handout that accompanies WP 148, which can be accessed by clicking on the file 19800500fedmwp148 in the Relation-requires field.
Keyword: Competitive equilibrium and Time series analysis Subject (JEL): D51 - General equilibrium and disequilibrium - Exchange and production economies and C32 - Multiple or simultaneous equation models - Time-series models ; Dynamic quantile regressions