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- Creator:
- Danforth, John P.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 90
- Keyword:
- Job hunting, Risk, Employment, Income, and Salary
- Subject:
- J64 - Mobility, unemployment, and vacancies - Unemployment : Models, duration, incidence, and job search
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- Creator:
- Wallace, Neil.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 24
- 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:
- Monetary economy, Stochastic, and Risk aversion
- Subject:
- C51 - Econometric modeling - Model construction and estimation, G11 - General financial markets - Portfolio choice ; Investment decisions, and E41 - Money and interest rates - Demand for money
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- Creator:
- Mehra, Rajnish. and Prescott, Edward C.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 389
- Keyword:
- Real interest rates, Debt, Equity, Equity premium puzzle, Rietz theory, Consumption, Risk aversion, and Fiat money
- Subject:
- H30 - Fiscal policies and behavior of economic agents - General, H63 - National budget, deficit, and debt - Debt ; Debt management, D81 - Information, knowledge, and uncertainty - Criteria for decision-making under risk and uncertainty, and E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth
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- Creator:
- Ostroy, Joseph M. and Potter, Simon M.
- Series:
- Finance, fluctuations, and development
- Abstract:
- We formulate a representative consumer model of intertemporal resource reallocation in which fluctuations in equity prices contribute to the smoothing of consumption flows. Features of the model include (a) an incompletely observable stochastic process of productivity shocks leading to fluctuating confidence of beliefs and (b) technologies involving commitments of a resource good. These features are exploited to show that (1) equities are not a representative form of total wealth and (2) the valuation of currently active firms is not representative of the valuation of all firms. We examine the implications of (1) and (2) to argue that empirical findings for the volatility and 'value shortfall' of equity prices may be consistent with a frictionless representative consumer model having a low degree of risk-aversion. Simulation of a calibrated version of the model for a risk-neutral consumer shows that when the 'data' is analyzed according to current econometric procedures, it is found to exhibit volatility of the same order of magnitude as that found in the actual data, although the model contains no excess volatility.
- Keyword:
- Technological commitments, Equity premium, Uncertainty of beliefs, Excess volatility, and Value shortfall
- Subject:
- G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates, E44 - Money and interest rates - Financial markets and the macroeconomy, G14 - General financial markets - Information and market efficiency ; Event studies, and E13 - General aggregative models - Neoclassical
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- Creator:
- Aiyagari, S. Rao.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 319
- Abstract:
- We consider the existence of deterministically cycling steady state equilibria in a class of stationary overlapping generations models with sufficiently long (but, finite) lived agents. Preferences are of the discounted sum of utilities type with a fixed discount rate. Utility functions with large coefficients of relative risk aversion which generate strong income effects (relative to substitution effects) and backward bending offer curves are permitted. Lifetime endowment patterns are quite arbitrary. We show that if agents have a positive discount rate, then as agents1 lifespans get large, short period non-monetary cycles will disappear. Further, constant monetary steady states do not exist and therefore, neither do stationary monetary cycles of any period. We then consider the case where agents have a negative discount rate and show that there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no matter how long agents live.
- Keyword:
- Monetary theory, Intertemporal choice, Business cycles, and Longevity
- Subject:
- N10 - Macroeconomics and monetary economics ; Growth and fluctuations - General, international, or comparative and D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving
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- Creator:
- Backus, David. and Kehoe, Patrick J.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 359
- Abstract:
- We show that some classes of sterilized interventions have no effect on equilibrium prices or quantities. The proof does not depend on complete markets, infinitely-lived agents, Ricardian equivalence, monetary neutrality, or the law of one price. Moreover, regressions of exchange rates or interest differentials on variables measuring the currency composition of the debt may contain no information, in our theoretical economy, about the effectiveness of such interventions. Another class of interventions requires simultaneous changes in monetary and fiscal policy; their effects depend, generally, on the influence of tax distortions, government spending, and money supplies on economic behavior. We suggest that in applying the portfolio balance approach to the study of intervention, lack 01 explicit modeling of these features is a serious flaw.
- Keyword:
- Foreign exchange law and legislation and Debts, external
- Subject:
- H30 - Fiscal policies and behavior of economic agents - General, F31 - International finance - Foreign exchange, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
-
- Creator:
- Chari, V. V. and Jagannathan, Ravi.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 321
- Keyword:
- Mortgage points, Contingent clause, Prepayment penalty, Adverse selection model, Points, Residential real estate market, and Home mortgage
- Subject:
- G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages and E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates
-
- Creator:
- Carroll, Evelyn F.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 191
- Keyword:
- E-pay, Automated payments, Credit, Electronic banking, Autopay, and Electronic payments
- Subject:
- O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes and G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages
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- Creator:
- Danforth, John P.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 69
- Keyword:
- Wealth, Risk, Income distribution, and Employment
- Subject:
- J31 - Wages, compensation, and labor costs - Wage level and structure ; Wage differentials and J01 - Labor and demographic economics - General - Labor Economics : General
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- Creator:
- Sargent, Thomas J.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 28
- Keyword:
- Unemployment rate, Risk tolerance, and Money wages
- Subject:
- J30 - Wages, compensation, and labor costs - General and E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital