Search Results
Working Paper
Nonmonetary steady states in stationary overlapping generations models with long lived agents and discounting: multiplicity, optimality, and consumption smoothing
We construct a sequence of pure exchange, stationary OLG economies in which generations have longer and longer life spans and all agents maximize a discounted sum of utilities with a fixed, positive, and common discount rate. Period utility functions and endowment patterns are subject to mild restrictions and within generation heterogeneity is permitted. We show that: (i) Every sequence of equilibrium interest rates converges to the discount rate. (ii) Eventually every nonmonetary steady state is optimal and a monetary steady state will never exist. (iii) For any agent consumption at any ...
Discussion Paper
The output, employment, and interest rate effects of government consumption
This paper investigates the impact of aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. ...
Journal Article
Deflating the case for zero inflation
This paper analyzes the U.S. congressional proposal to instruct the Federal Reserve to, in the next five years, lower inflation to zero from its current rate of around 5 percent. The paper concludes that, when other policy options are considered, the zero inflation policy is not advisable. Its benefits would be very small--possibly negative--while its costs would probably be significant. Other, more direct policy options could produce most of the same benefits with fewer costs. Among these alternative policies are deregulating interest rates on demand deposits, paying interest on financial ...
Working Paper
Money and dynamic credit arrangements with private information
The authors construct a model with private information in which consumers write dynamic contracts with financial intermediaries.
Working Paper
Transaction services, inflation, and welfare
This paper is motivated by a variety of empirical observations on the comovements of currency velocity, inflation, and the relative size of the "credit services" sector. By the credit services sector we mean the part of banking and credit sector which provides alternative means of transactions to using currency as well as other services which help people economize on currency. We incorporate the credit services sector into a monetary growth model. Our model makes two specific and new contributions. The first is to show that direct quantitative evidence on the welfare cost of low inflation ...
Report
Transaction services, inflation, and welfare
This paper is motivated by empirical observations on the comovements of currency velocity, inflation, and the relative size of the credit services sector. We document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money. Our model makes two new contributions. First, we show that direct evidence on the appropriately defined credit service sector for the United States is consistent with the welfare cost measured using an estimated money demand schedule. Second, we provide welfare cost of inflation ...
Working Paper
Optimality and monetary equilibria in stationary overlapping generations models with long lived agents: growth versus discounting
This paper studies the relationship between the existence and optimality of a monetary steady-state and the nonoptimality of nonmonetary steady-states. We construct a sequence of stationary overlapping generations economies with longer and longer lived generations in which all agents maximize a discounted sum of utilities with a common discount rate. Under some assumptions the following result is established: If the discount rate is greater (less) than the population growth rate, then eventually every nonmonetary steady-state is optimal (non-optimal) and a monetary steady-state does not exist ...
Journal Article
Intergenerational linkages and government budget policies
Journal Article
Deficits, interest rates, and the tax distribution
Working Paper
Banking panics, information, and rational expectations equilibrium
This paper shows that bank runs can be modeled as an equilibrium phenomenon. We demonstrate that some aspects of the intuitive ?story? that bank runs start with fears of insolvency of banks can be rigorously modeled. If individuals observe long ?lines? at the bank, they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run. However, bank runs occur even when no one has any adverse information. Extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations.