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A generalized equilibrium solution for game theory
Iterated contraction by dominance produces a generalized equilibrium. This solution to game theory is motivated, generated, analyzed, and compared to Nash equilibrium. One implication drawn is that a realized event in a social situation need not be uniquely determined by simple individual choices, even though the preference orderings implying those choices are the appropriate primitive.
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Bank collapse and depression
The recurrent banking panics of the 19th century and the Great Depression of the 1930s are widely viewed as failures of our economic system. A simple version of Samuelson?s overlapping generations model is used to generate such failures of Walrasian equilibrium. The spontaneous ?panics? generated involve a collapse of bank credit, causing in turn a drop in investment demand. The model suggests that both the recent technological advances in the intermediation industry and the current move towards deregulation of that industry are ominous developments.
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A general method of solution for game theory and its relevance for economic theorizing
According to the folklore of economics, game theory has failed. This paper argues that that is an incorrect interpretation of the game theory literature. When faced with a well-posed problem, game theory provides a solution. When faced with an ill-posed problem, game theory fails to provide a solution. This is, indeed, the best one can hope for from a method of analysis! Further, some suggestions are made for facing game theory with well-posed economic problems.
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Demand management: an illustrative example
This paper presents a simple coherent general equilibrium example in which optimal provision of a public good implies counter-cyclical government expenditure.
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The competitive provision of fiat money
Herein, it is demonstrated that the competitive provision of fiat money is generically either inefficient or infeasible.
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Monetary policy in the presence of a stochastic deficit
This paper presents a welfare analysis of monetary policy rules that differ as regards the extent to which monetary policy accommodates an exogenous, stochastic deficit. Examples show that a nonaccommodating rule, one involving a higher ratio of bonds to currency the higher the deficit, is not necessarily better than rules that accommodate: either a rule involving a constant ratio of bonds to currency or one involving a lower ratio of bonds to currency the higher the deficit. Moreover, the nonaccommodating rule can imply more variation in the price level than the accommodating rules.
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Open-market operations in a model of regulated, insured intermediaries
In ?The Inefficiency of Interest-Bearing National Debt,? (JPE, April 1979) we argued that private sector transaction costs are needed in order to explain interest on government debt. It follows that if the government?s transaction costs do not depend on its portfolio, then, barring special circumstances, an open-market purchase is deflationary and welfare improving. In this paper we show that this result can survive a potentially relevant special circumstance: reserve requirements which limit the size of insured intermediaries.