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Showing results 1 to 7 of approximately 7.
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Working Paper
Inside-outside money competition
We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if "inside monies" can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a 'benevolent' government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.
Working Paper
The economics of split-ticket voting in representative democracies
In U.S. elections, voters often vote for candidates from different parties for president and Congress. Voters also express dissatisfaction with the performance of Congress as a whole and satisfaction with their own representative. We develop a model of split-ticket voting in which government spending is financed by uniform taxes but the benefits from this spending are concentrated. While the model generates split-ticket voting, overall spending is too high only if the president?s powers are limited. Overall spending is too high in a parliamentary system, and our model can be used as the basis ...
Working Paper
Nominal debt as a burden on monetary policy
We study the effects of nominal debt on the optimal sequential choice of monetary and debt policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium. Without full commitment, the optimal sequential policy is to deplete the outstanding stock of debt progressively until these extra costs disappear. Nominal debt is therefore a burden on monetary policy, not only because it must be serviced, but also because it creates a time inconsistency problem that ...
Report
Money is an experience good: competition and trust in the private provision of money
The interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money is studied. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can be observed only after its purchasing capacity is realized. In this sense, money is an experience good.
Discussion Paper
Electronic money: the end of inflation?
We study economies where government currency and electronic money, drawn from interest bearing deposits in private financial intermediary institutions, are full substitutes. We analyze the impact of competition on policy outcomes under different assumptions regarding: the objectives of the central bank, the ability of the monetary authorities to commit to future policies, and the legal restrictions in the form of reserve requirements on financial intermediaries. Electronic money competition can discipline a revenue maximizing government and result in lower equilibrium inflation rates, even ...
Discussion Paper
Communication, commitment, and growth
We study the effect on the growth of an economy of alternative financing opportunities in a stochastic growth model with incentive constraints. Efficient accumulation mechanisms are designed and computed for economies that differ in their incentive structure. We show that when borrowing is subject to information constraints, there is a computable efficient transfer mechanism that does not affect capital accumulation and investment patterns, even though consumption patterns and the distribution of wealth are affected. In contrast, enforcement constraints can severely reduce the outside ...
Discussion Paper
Expectationally-driven market volatility: an experimental study
We study the existence and robustness of expectationally-driven price volatility in experimental overlapping generation economies. In the theoretical model under study there exist pure sunspot equilibria which can be learned if agents use some adaptive learning rules. Our data show the existence of expectationally-driven cycles, but only after subjects have been exposed to a sequence of real shocks and learned a real cycle. In this sense, we show evidence of path-dependent price volatility.