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Does commodity money eliminate the indeterminacy of equilibria?
Previous studies have shown that a random-matching model with divisible at money and without constraint on agents' money inventories possesses a continuum of stationary single-price equilibria. Wallace  conjectured that the indeterminacy can be eliminated by the use of commodity money, just as the elimination of the contin- uum of dynamic (non-stationary) equilibria in models such asoverlapping generation or infnite-horizon money-in-utility-function. In contrast, I and that in a similar random-matching model with dividend-yielding commodity money, a continuum of stationary single-price ...
Equilibrium lending mechanism and aggregate activity
This paper develops a model of the credit market where the equilibrium lending mechanism, as well as the economy's aggregate investment and output, are endogenously determined. It focuses on two crucial elements. One is the micro theory of optimal lending mechanism. Instead of imposing a particular lending contract form exogenously, we solve for the optimal contract between a borrower and a lender designed to circumvent adverse-selection and moral-hazard problems in the model environment. The other important element is the effect of credit market condition on the lending mechanism. We embed ...
Price level uniformity in a random matching model with perfectly patient traders
This paper shows that one of the defining features of Walrasian equilibrium---law of one price---characterizes equilibrium in a non-Walrasian environment of (1) random trade matching without double coincidence of wants, and (2) strategic, price-setting conduct. Money is modeled as perfectly divisible and there is no constraint on agents' money inventories. In such an environment with discounting, the endogenous heterogeneity of money balances among agents implies differences in marginal valuation of money between distinct pairs of traders, which raises the question whether decentralized trade ...
Dynamic monetary equilibrium in a random-matching economy
This article concerns decentralized trading and efficiency. As in Gale (1986a, b), traders transfer endowments of divisible goods in random, pairwise meetings that take place in discrete time. Anonymity and absence of time preference forestall strategic power. As in Kiyotaki and Wright (1989), and in contrast to Gale, trade and consumption occur repeatedly. Absence of double coincidence of wants makes money essential. There is a continuum of welfare-ranked equilibria in which the level of economic activity is decreasing in the price level, from which Gale abstracts by focusing on relative ...
Money as a mechanism in a Bewley economy
We study what features an economic environment might possess, such that it would be Pareto efficient for the exchange of goods in that environment to be conducted on spot markets where those goods trade for money. We prove a conjecture that is essentially due to Bewley [1980,1983]. Monetary spot trading is nearly efficient when there is only a single perishable good (or a composite commodity) at each date and state of the world; random shocks are idiosyncratic, privately observed, and temporary; markets are competitive; and the agents are very patient. This result is a fairly close analogue, ...
Individual and aggregate real balances in a random matching model
This paper investigates the characteristics of stationary single-price equilibrium in a monetary random-matching model where agents can hold an arbitrary amount of divisible money and where production is costly. At such an equilibrium, agents? money holdings are endogenously determined and uniformly bounded. A refinement of weakly undominated strategies is argued to be necessary. It is shown that a continuum of single-price equilibria indexed by the aggregate real-money balance exists if one such equilibrium exists. Equilibria with different money-holdings upper bounds, hence different ...
A model of a currency shortage
Until the mid-19th century, shortages of currency were sometimes serious problems. One common response was to prohibit the export of coins. We use a random matching model with indivisible money to explain a shortage and to judge the desirability of a prohibition on the export of coins. The model, although extreme in many regards, represents better than earlier models a demand for outside money and the problems that arise when that money is indivisible. It can also rationalize a prohibition on the export of coins.
A stable money demand: Looking for the right monetary aggregate
A money demand relationship with M1 as the monetary aggregate holds very well until the mid-1980s but not well after that. This could be because the demand for money is not a stable relationship. The authors' conclusion is that the measure of money is not a stable measure. Technological innovation and changes in regulatory practices in the past two decades have made other monetary aggregates as liquid as M1. Once an appropriately adjusted measure of money is taken into consideration, the stability of money demand is recovered.
When can we forecast inflation?
This article reassesses recent work that has challenged the usefulness of inflation forecasts. The authors find that inflation forecasts were informative in 1977-84 and 1993-2000, but less informative in 1985-92. They also find that standard forecasting models, while generally poor at forecasting the magnitude of inflation, are good at forecasting the direction of change of inflation.
Understanding intraday credit in large-value payment systems
This article explains how large-value payment systems work, using either gross or net settlement. The author discusses risk control in a real-time gross settlement system and analyzes the pricing of credit to provide intraday liquidity. She argues for distinguishing between consumption/investment debt and payment debt. A theoretical model suggests that, under the assumption that there are no opportunities for intraday optimization of consumption and production, the risk-free rate on intraday payment credit should be zero. This is because the cost of intraday liquidity is a transaction cost of ...