Creator: Lagos, Ricardo and Rocheteau, Guillaume Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 375 Abstract:
We investigate how trading frictions in asset markets affect portfolio choices, asset prices and efficiency. We generalize the search-theoretic model of financial intermediation of Duffie, Gârleanu and Pedersen (2005) to allow for more general preferences and idiosyncratic shock structure, unrestricted portfolio choices, aggregate uncertainty and entry of dealers. With a fixed measure of dealers, we show that a steady-state equilibrium exists and is unique, and provide a condition on preferences under which a reduction in trading frictions leads to an increase in the price of the asset. We also analyze the effects of trading frictions on bid-ask spreads, trade volume and the volatility of asset prices, and find that the asset allocation is constrained-inefficient unless investors have all the bargaining power in bilateral negotiations with dealers. We show that the dealers’ entry decision introduces a feedback that can give rise to multiple equilibria, and that free-entry equilibria are generically inefficient.
关键词: Execution delay, Liquidity, Search, Asset prices, Trade volume, and Bid-ask spread 学科: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages, G11 - Portfolio Choice; Investment Decisions, and G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 376 Abstract:
We describe a simple environment in which assets of varying qualities may be used for transactions and consumption. The quality of an asset is known to the seller but not the buyer. We show that this feature can generate a negative relationship between the transactions velocities of assets and their rates of return. We also discuss several versions of Gresham's Law which hold in this environment.
关键词: Consumption, Asset quality, Transactions, and Gresham's Law 学科: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 382 Abstract:
A model with private information is constructed that supports conventional arguments for a government monopoly in supplying circulating media of exchange. The model also yields predictions, including rate-of-return dominance of circulating media of exchange, that are consistent with observations from free banking regimes and fiat money regimes. In a laissez faire banking equilibrium, fiat money is not valued, and the resulting allocation is not Pareto optimal. However, if private agents are restricted from issuing circulating notes, there exists an equilibrium with valued fiat money that Pareto dominates the laissez faire equilibrium and is constrained Pareto optimal.
关键词: Currency, Fiat money, Assymetric information, Monetary economics, Monetary exchange, Private information, Laissez faire banking, Free banking, and Money 学科: D82 - Asymmetric and Private Information; Mechanism Design and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) 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.
关键词: Money, Monetary equilbria, Inflation, Barter equilibria, and Consumers 学科: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems and D51 - Exchange and Production Economies
Creator: Siu, Henry E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 390 Abstract:
I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria—one with low inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of price rigidity.
关键词: Time consistency, State dependent pricing, Markov equilibrium, Discretion, Multiple equilibria, Sticky prices, and Expectation traps 学科: E52 - Monetary Policy, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, and E31 - Price Level; Inflation; Deflation
Creator: Atkeson, Andrew, Chari, V. V., and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 394 Abstract:
The optimal choice of a monetary policy instrument depends on how tight and transparent the available instruments are and on whether policymakers can commit to future policies. Tightness is always desirable; transparency is only if policymakers cannot commit. Interest rates, which can be made endogenously tight, have a natural advantage over money growth and exchange rates, which cannot. As prices, interest and exchange rates are more transparent than money growth. All else equal, the best instrument is interest rates and the next-best, exchange rates. These findings are consistent with the observed instrument choices of developed and less-developed economies.
学科: E40 - Money and Interest Rates: General, E58 - Central Banks and Their Policies, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data), E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, E51 - Money Supply; Credit; Money Multipliers, E52 - Monetary Policy, and E31 - Price Level; Inflation; Deflation
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 405 Abstract:
A model is constructed where banks provide access to a communication technology which facilitates trade. Bank liabilities may coexist with alternative means of payment in equilibrium, and there exist regions of the parameter space where banking dominates the payments system and where physical exchange media dominate. The model is consistent with some observations concerning the role of the banking system in economic development, and with characteristics of banking crises. In particular, in early stages of economic development: 1) rapid output growth is accompanied by an increasing share of banking in transactions activity and 2) there are recurrent banking "panics" where reductions in measured aggregate output coincide with increases in the use of alternative means of payment relative to bank liabilities. In later stages of development, growth slackens off, the share of banking in the payments system stabilizes and the economy is less likely to be subject to banking panics.
关键词: Financial panic, Banks, Banking panics, Communication cost, and Communication technology 学科: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Redish, Angela, 1952- and Weber, Warren E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 416 Abstract:
Contemporaries, and economic historians, have noted several features of medieval and early modern European monetary systems that are hard to analyze using models of centralized exchange. For example, contemporaries complained of recurrent shortages of small change and argued that an abundance/dearth of money had real effects on exchange. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that adding small coins to an economy with only large coins is welfare improving. This effect is amplified by increases in trading opportunities. Further, changes in the quantity of monetary metals affect the real economy and the amount of exchange as well as the optimal denomination size. Finally, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare improving.
关键词: Random Matching, Gresham’s Law, Optimal Denominations, and Commodity Money