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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 -
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 -
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 -
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 -
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 -
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 -
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 -
Creator: Aiyagari, S. Rao. and Peled, Dan. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 503 Abstract: It is often argued that with a positively skewed income distribution (median less than mean) a majority voting over proportional tax rates would result in higher tax rates than those that maximize average welfare, and will accordingly reduce aggregate savings. We reexamine this view in a capital accumulation model, in which distorting redistributive taxes provide insurance against idiosyncratic shocks, and income distributions evolve endogenously. We find small differences of either sign between the tax rates set by a majority voting and a utilitarian government, for reasonable parametric specifications. We show how these differences reflect a greater responsiveness of a utilitarian government to the average need for the insurance provided by the tax-redistribution scheme. These conclusions remain true despite the fact that the model simulations produce positively skewed distributions of total income across agents. Keyword: Votes, Taxes, and Income distribution Subject: E62 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - Fiscal policy and D72 - Analysis of collective decision-making - Models of political processes : Rent-seeking, elections, legislatures, and voting behavior