Creator: Den Haan, Wouter J., 1962- Series: Macroeconomics with heterogenous agents, incomplete markets, liquidity constraints, and transaction costs Abstract:
This paper is part of a project to model the interaction between heterogeneous agents in intertemporal stochastic models and to develop numerical algorithms to solve these kind of models. It is well-known that solving dynamic heterogeneous agent models is a challenging problem, since in these models the distribution of wealth and other characteristics evolve endogenously over time. Existing dynamic models in the literature contain therefore just two agents or other simplifying assumptions to limit the heterogeneity.
Subject (JEL): D52 - General equilibrium and disequilibrium - Incomplete markets and C63 - Mathematical methods and programming - Computational techniques ; Simulation modeling
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.
Subject (JEL): 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: Bertola, Giuseppe. Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Subject (JEL): E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, O41 - One, Two, and Multisector Growth Models, and E25 - Aggregate Factor Income Distribution
Creator: Baxter, Marianne, 1956- Series: Nonlinear rational expectations modeling group Abstract:
This paper develops a new method for approximating dynamic competitive equilibria in economies in which competitive equilibrium is not necessarily Pareto optimal. The method involves finding approximate equilibrium policy functions by iterating on the stochastic Euler equations which characterize the economy's equilibrium. Two applications are presented: the stochastic growth model of Brock and Mirman (1971) modified to allow distortionary taxation, and a model of inflation and capital accumulation based on Stockman (1981). The computational speed and accuracy of this approach suggests that it may be a feasible method for studying suboptimal economies with large state spaces.
Subject (JEL): C61 - Mathematical methods and programming - Optimization techniques ; Programming models ; Dynamic analysis, E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, and C63 - Mathematical methods and programming - Computational techniques ; Simulation modeling
Creator: Barbosa, Antonio S. Pinto., Jovanovic, Boyan, 1951-, and Spiegel, Mark. Series: Conference on economics and politics Abstract:
This paper analyzes how political stability depends on economic factors. Fluctuations in groups' economic capacities and in their abilities to engage in rent-seeking or predatory behavior create periodic incentives for those groups to renege on their social obligations. A constitution remains in force so long as no party wishes to defect to the noncooperative situation, and it is reinstituted as soon as each party finds it to its advantage to revert to cooperation. Partnerships of equals are easier to sustain than are arrangements in which one party is more powerful in some economic or noneconomic trait. In this sense, inequality is bad for social welfare. Surprisingly, perhaps, it is the rich, and not the poor segments of society who in our model pose the greater threat to the stability of the social order. Using cross-country data, we test and confirm the prediction that most constitutional disruptions should be accompanied by increases in income inequality.
Keyword: Welfare, Social problems, Interest groups, and Economic models Subject (JEL): E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy and D72 - Analysis of collective decision-making - Models of political processes : Rent-seeking, elections, legislatures, and voting behavior
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).
Subject (JEL): 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.
Subject (JEL): 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-
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.
Subject (JEL): 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