A Tractable Model of Monetary Exchange with Ex-Post Heterogeneity

Rocheteau, Guillaume; Weill, Pierre-Olivier; Wong, Russell

doi:10.21144/wp17-06

Cited by 9 publications

(7 citation statements)

References 44 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Geromichalos, Herrenbrueck, and Salyer () extend the present model by incorporating assets with different maturities and use their framework to rationalize an upward sloping yield curve. Finally, Herrenbrueck () studies quantitative easing in a continuous‐time framework, which embeds the DGP model in the monetary economy of Rocheteau, Weill, and Wong (). Because asset liquidation is subject to frictions, money and financial assets are imperfect substitutes, which gives scope to policies that alter the supply of these assets in order to affect the real economy.…”

Section: Related Literaturementioning

confidence: 99%

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

Geromichalos¹,

Herrenbrueck²

2016

Journal of Money, Credit and Banking

109

101

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We revisit a traditional topic in monetary economics: the relationship between asset prices and monetary policy. We study a model in which money helps facilitate trade in decentralized markets, as in Lagos andWright (2005), and real assets are traded in an over-the-counter (OTC) market, as in Duffie, Gˆarleanu, and Pedersen (2005). Agents wish to hold liquid portfolios, but liquidity comes at a cost: inflation. The OTC market serves as a secondary asset market, in which agents can rebalance their positions depending on their liquidity needs. Hence, a contribution of our paper is to provide a micro-founded explanation of the assumption that different investors have different valuations for the same asset, which is the key for generating gains from trade in the Duffie et al framework. In equilibrium, assets can be priced higher than their fundamental value because they help agents avoid the inflation tax. Terms of use: Documents in Department of EconomicsOne Shields Avenue Davis, CA 95616 (530)752-0741 http://www.econ.ucdavis.edu/working_search.cfm Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets Athanasios GeromichalosUniversity of California -Davis Lucas Herrenbrueck University of California -DavisThis Version: September 2012 PRELIMINARY AND INCOMPLETE -PLEASE DO NOT CIRCULATE ABSTRACT ------------------------------------We revisit a traditional topic in monetary economics: the relationship between asset prices and monetary policy. We study a model in which money helps facilitate trade in decentralized markets, as in Lagos and Wright (2005), and real assets are traded in an over-the-counter (OTC) market, as in Duffie, Gârleanu, and Pedersen (2005). Agents wish to hold liquid portfolios, but liquidity comes at a cost: inflation. The OTC market serves as a secondary asset market, in which agents can rebalance their positions depending on their liquidity needs. Hence, a contribution of our paper is to provide a micro-founded explanation of the assumption that different investors have different valuations for the same asset, which is the key for generating gains from trade in the Duffie et al framework. In equilibrium, assets can be priced higher than their fundamental value because they help agents avoid the inflation tax.Keywords: monetary-search models, liquidity, asset prices, over-the-counter markets Email: ageromich@ucdavis.edu, herrenbrueck@ucdavis.edu.We are grateful to Jonathan Chiu, Miguel Molico, Guillaume Rocheteau, Christo...

show abstract

Section: Related Literaturementioning

confidence: 99%

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

Geromichalos¹,

Herrenbrueck²

2016

Journal of Money, Credit and Banking

109

101

View full text Add to dashboard Cite

show abstract

“…For example, the 80th percentile of money holding is 1.34 times the average money holding in the model. According to the balances of transaction accounts in the 2013 Survey of Consumer Finance, the corresponding number is 1.23 in the data(Rocheteau, Weill and Wong (2018)). In the model, the coefficient of variation of prices is 25%.…”

mentioning

confidence: 99%

Short-run dynamics in a search-theoretic model of monetary exchange

Chiu

Molico

2021

Review of Economic Dynamics

View full text Add to dashboard Cite

Bank of Canada staff working papers provide a forum for staff to publish work-in-progress research independently from the Bank's Governing Council. This research may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank.

show abstract

“…Papers with analytically tractable models include but not limited to Berensten, Camera, and Waller (2005); Menzio, Shi, and Sun (2013); Rocheteau et al (2015b); Rocheteau et al (2015a), while the ones based on numerical methods are, for example, Molico (1997); Kim and Lee (2008); Chiu and Molico (2010); Chiu and Molico (2014). These papers generate stationary equilibria with non-degenerate distribution of money holdings, thereby inducing inflation to enhance risk sharing, i.e., a case against the Friedman rule.…”

mentioning

confidence: 99%

Uncertainty-induced dynamic inefficiency and the optimal inflation rate

Jung

2018

International Review of Economics & Finance

View full text Add to dashboard Cite

I construct an overlapping-generations model of money with Epstein and Zin (1989) preferences and study how aggregate output uncertainty affects the optimal rate of inflation. When money only serves as savings instruments, I find that the optimality of Friedman Rule breaks up only if agents prefer late resolution of uncertainty. However, if an additional role of money as a medium of exchange is introduced, then the Friedman Rule becomes generally suboptimal regardless of agents' preferences for the timing of uncertainty resolution. The aggregate output uncertainty, nevertheless, crucially determines the level of optimal inflation rate in this case.

show abstract

A Tractable Model of Monetary Exchange with Ex-Post Heterogeneity

Cited by 9 publications

References 44 publications

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

Short-run dynamics in a search-theoretic model of monetary exchange

Uncertainty-induced dynamic inefficiency and the optimal inflation rate

Contact Info

Product

Resources

About