Portfolio autarky: a welfare analysis
Portfolio autarky obtains when residents of every country are prohibited from owning real assets located in other countries. Such a regime and a laissez-faire regime, both characterized by free trade in goods, are studied in a model whose resource and technology assumptions are those of the standard two-country, two- (nonreproducible) factor, two- (nonstorable) good model. But to ensure a market for assets (land), the model is peopled by overlapping generations; each two-period lived individual supplies one unit of labor only in the first period of his life. Unique equilibria are described ...
The real bills doctrine vs. the quantity theory: a reconsideration
On our interpretation, real bills advocates favor unfettered intermediation, while their critics, who we call quantity theorists, favor legal restrictions on intermediation geared to separate ?money? from ?credit.? We display examples of economies in which quantity-theory assertions about ?money-supply? and price-level behavior under the real bills regime are valid. In particular, both the price level and an asset total that quantity theorists would identify as money fluctuate more under a real bills regime than under a regime with restrictions like those favored by quantity theorists. ...
Interest rates under the U.S. national banking system
According to previous studies, the demand-liability feature of national bank notes did not present a problem for note-issuing banks because the nonbank public treated notes and other currency as perfect substitutes. However, that view, when combined with nonbindingness of the collateral restriction against note issue, itself an implication of the fact that some eligible collateral was not used for that purpose, implies that the safe short-term interest rate is pegged at the tax rate on note circulation. Since evidence on short-term interest rates is inconsistent with such a peg, that view ...
Ricardian equivalence and money dominated in return: are they mutually consistent generally?
Different conclusions about the effects of open market operations are reached even among economists using full employment and rational expectations models. I show that these differences can be attributed to different assumptions regarding the concept of the deficit that is held fixed for an open market operation, the diversity among agents, and the features generating money demand. With regard to those features, I argue that plausible ways of explaining the holding of low-return money preclude the kind of perfect credit markets needed to obtain Ricardian equivalence.
A suggestion for further simplifying the theory of money
Our suggestion consists of three postulates: assets are valued only in terms of their payoffs, perfect foresight, and complete and costless markets under laissez-faire. Together these postulates imply that the crucial anomaly, rate-of-return dominance of ?money,? is to be explained by legal restrictions. ; Our defense of these postulates is two-fold. First we compare them with existing alternative theories. Second, we provide an illustrative model which : (a) is consistent with the postulates, (b) implies rate-of-return dominance under suitable legal restrictions, and (c) addresses monetary ...
A hybrid fiat-commodity monetary system
In this paper I describe a ?monetary? system in which backing is provided for the government?s liabilities by way of contingent resort to taxes. The system has some of the features of a commodity money system with a large seignorage spread between bid and ask prices. It is studied within the context of a one-good, pure exchange model of two-period-lived overlapping generations in which, aside from various uniform boundedness assumptions, considerable diversity is allowed both within and across generations. Two results are established: (i) the existence of at least one perfect foresight ...
A price discrimination analysis of monetary policy
Monetary policy is analyzed within a model that ignores transaction costs and appeals solely to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in versions of overlapping generations models that contain three assets: government-issued currency and bonds and real capital. It is shown that legal restrictions and the use of both currency and bonds permit the government to levy a discriminatory inflation tax and that such a tax may be ...