1,720,982 research outputs found
The Efficiency of the Friedman Rule in a Monetary Union
Full text linkThis paper evaluates the performance of the Friedman rule and
characterizes ecient allocation of resources within a new-generation,
search-theoretic model of monetary union with divisibility and degen-
erate distribution of money holdings. The main results are: i) the
Friedman rule is a necessary and sucient condition for global e-
ciency, and ii) the Friedman rule is necessary for local eciency, as it
is the unique policy rule that eliminates the hold-up problem in any
local market. It is also shown that the ecient quantity demanded
by a country-i buyer is increasing, and the country-i price of goods
is decreasing, in the country-i fraction of sellers
Endogenous Currencies Acceptability
Full text linkThis paper studies currencies acceptability in an economy a la Lagos and Wright [20].
Monies play an essential role as media of exchange in decentralized markets
awed by frictions,
and an asset-like role in centralized markets. When monies are allowed to compete, the ac-
ceptability of each depends (i) on its ability to provide insurance against the in
ation tax in
centralized markets and (ii) on its role as a means of payment in decentralized markets. When
monies growth rates dier, the rst eect disincentives demand of the more intensively issued
money, which holders sellers expect to come across more likely in decentralized markets. A
tradeo between less in
ation tax and fewer chances of selling goods provides new insights into
the characterization of dual currency regime equilibria. As agents attempt at balancing o the
sum of expected returns from using each money both as an asset and as a means of payment,
the following outcomes are possible: (i) the best asset drives the worst asset out of circulation
when the rst eect dominates; (ii) monies coexist when expected returns are equal across
currencies and (iii) the worst asset drives the best one out of circulation when the protection
eect against missed sales provided in decentralized markets is large enough to cause a sellers
bias towards acceptability of the more intensively issued currency up to domination of the rst
eect. In this latter instance, and unlike models without competing media of exchange, de
at-
ing the best asset in excess of the Friedman rule is consistent with monetary equilibrium. The
optimal monetary policy consists of de
ating the best asset (the worst asset) in excess (short)
of the Friedman rule by an amount equal to its liquidity gap (premium). Under purchasing
power parity, this results in an ever appreciating exchange rate. The framework of analysis can
be extended to geographically separated decentralized markets and an international central-
ized market. On the former market agents may need to exchange foreign monies for domestic,while only monies' purchasing power matters in the centralized market. Demand and supply
for monies in the decentralized market determines spot exchange rates which may temporarily
deviate from trends consistent with PPP. Teh relationship between moneatry and exchange
rate policy, along with their eects on local and international welfare, should be studied
Coexistence of Monies as the Asymmetric Equilibrium of an Anonymous Game
Full text linkThe present paper shows that the presence of a government com-
mitted to accepting legal tender ensures that legal tender coexists with
either an international or a local currency, even when residents have
identical preferences. This result is obtained as an asymmetric equi-
librium of an anonymous game with atoms. Hence, monies coexistence
may arise as a consequence of money demand equilibrium conditions,
rather than strategic externalities associated with economic integra-
tion.
There is a symmetric equilibrium where everybody goes for legal
tender only when it gives a payoff greater than the other money. The
results are derived by constructing a game for the choice of UK resi-
dents between Pounds and Euros
Dual Currency Circulation and Information
Full text linkThis paper studies dual money circulation within a model a la
Lagos andWright [18]. The main result of the analysis is the following.
In a dual currency circulation economy, (i) the money type with an
higher rate of growth circulates more widely than the money type
with a lower rate of growth, and (ii) the two monies are symmetrically
accepted if and only if they grow at the same rate
Fiscal policy and endogenous fluctuations
Full text linkWe study the effects of factor income taxation on the dynamics
of equilibrium paths. When net of taxes returns are treated as fiscal
parameters, endogenous
fluctuations may emerge as a consequence of
Hopf bifurcations. A technique based on the rank of Bezout matrices
for polynomials associated to the Jacobian matrix is used to compute
the Hopf points
Low public debt as a commitment device for fiscal policy
Full text linkThis paper studies the time-inconsistency issue in a setting where
the present government pre-announces a tax rate on labor income, and
output is a resource exploited by the government and privates' jointly.
The present government is tempted to increase its consumption
by implementing a tax rate higher than what it had announced and
privates had agreed upon. When confronted with this temptation,
it must take account of a threat of privates enacting trigger strate-
gies that will eventually confine present and next governments to low
consumption levels. The comparison between benefits and costs from
defection also depends on the extent the present government discounts
next governments welfare. In particular, the trade-off between contin-
uation and defection is as follows: defection entails an immediate and
temporary increase in the utility enjoyed by the present government.
As a consequence of privates enacting trigger strategies, a utility loss is
suffered directly by the present government until the next government
starts, and indirectly as a consequence of every successive government
being confined to low levels of consumption.
By ensuring the value of continuation exceeds the value of defec-
tion, a sufficiently low level of public debt acts as a commitment device
for continuation of the pre-announced tax policy even when the util-
ity loss suffered from the enactment of trigger strategies across the present government time horizon does not outweigh the benets that
the present government directly enjoys from defection
Equilibrium taxation with inconsistent preferences
Full text linkInconsistent preferences are a cause of time-inconsistency in pol- icy design. This type of inconsistency entails welfare costs for allo- cations are associated with Pareto-inefficient competitive equilibria. This paper builds a general equilibrium model for the characteriza- tion of allocations induced by Nash-equilibrium taxation policies with competitive markets
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